Policy Documents

What Went Wrong With the Bush Tax Cuts

Matthew Mitchell and Andrea Castillo –
November 28, 2012

Critics of the Bush tax cuts often dismiss the tax changes as a failed experiment in free-market economics. Noting that economic growth was slower in the years following the cuts than in the years preceding them, some critics see the experience as evidence that tax cuts do not work.

But the claim that these tax cuts exemplified free-market economic thinking is baseless. The Bush tax cuts had a number of problems from a market-oriented perspective: they were phased in slowly, set to expire within a decade, entailed a Keynesian emphasis on stimulating aggregate demand, and—above all—were undertaken without any effort to reduce spending.

In light of these problems, there is no reason to overturn decades of theoretical and empirical research supporting the link between low taxation and growth. The episode offers a cautionary lesson in how not to cut taxes.