Tax Cuts May Come At a Price, Study Says (WaPo):

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.
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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.”

So the tax cuts aren’t magic?

If those tax cuts are extended and matched by comparable reductions in government spending, under the best scenario, the nation’s level of economic activity would be increased by about 0.7 percent per year over time, or by $90 billion a year in current dollars, Carroll said.

The best scenario doesn’t even offset war spending for nine out of every twelve months.

We would however like to welcome the Treasury Department to the reality-based community.