Released: July 26, 2006

Income tax cuts must be offset elsewhere

Source: By Nell Henderson, Washington Post (Free Registration)

The federal government will need to either cut spending or raise taxes down the road to pay for extending President Bush’s recent tax cuts, the Treasury Department said in a report released yesterday, dismissing the idea popular with many Republicans that such sacrifices can be avoided.

The Treasury report did not openly address the much-debated contention of many conservative analysts that the tax cuts will boost economic growth so much over time that the resulting increase in taxes paid will offset much or all of the initial loss in government revenue - that tax cuts can essentially pay for themselves.

The report acknowledged the debate delicately, saying “the issue of how, or even if, these policies need to be financed remains a source of discussion among economists.”

But the Treasury’s view reflects “a recognition the federal government has to finance the tax relief” to avoid a rise in government debt, Robert Carroll, deputy assistant secretary for tax analysis, said in an interview.

The report stressed that the economic effects of extending the tax cuts “depend crucially on whether they are financed by lower spending or higher taxes in the future.”

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