The Bush Tax Cuts and the Deficit Myth

[Malice]

President Obama and congressional Democrats are blaming their trillion-dollar budget deficits on the Bush tax cuts of 2001 and 2003. Letting these tax cuts expire is their answer. Yet the data flatly contradict this "tax cuts caused the deficits" narrative. Consider the three most persistent myths:

• The Bush tax cuts wiped out last decade's budget surpluses. Sen. John Kerry (D., Mass.), for example, has long blamed the tax cuts for having "taken a $5.6 trillion surplus and turned it into deficits as far as the eye can see." That $5.6 trillion surplus never existed. It was a projection by the Congressional Budget Office (CBO) in January 2001 to cover the next decade. It assumed that late-1990s economic growth and the stock-market bubble (which had already peaked) would continue forever and generate record-high tax revenues. It assumed no recessions, no terrorist attacks, no wars, no natural disasters, and that all discretionary spending would fall to 1930s levels.

The projected $5.6 trillion surplus between 2002 and 2011 will more likely be a $6.1 trillion deficit through September 2011. So what was the cause of this dizzying, $11.7 trillion swing? I've analyzed CBO's 28 subsequent budget baseline updates since January 2001. These updates reveal that the much-maligned Bush tax cuts, at $1.7 trillion, caused just 14% of the swing from projected surpluses to actual deficits (and that is according to a "static" analysis, excluding any revenues recovered from faster economic growth induced by the cuts).

The bulk of the swing resulted from economic and technical revisions (33%), other new spending (32%), net interest on the debt (12%), the 2009 stimulus (6%) and other tax cuts (3%). Specifically, the tax cuts for those earning more than $250,000 are responsible for just 4% of the swing. If there were no Bush tax cuts, runaway spending and economic factors would have guaranteed more than $4 trillion in deficits over the decade and kept the budget in deficit every year except 2007.

• The next decade's deficits are the result of the previous administration's profligacy. Mr. Obama asserted in his January State of the Union Address that by the time he took office, "we had a one-year deficit of over $1 trillion and projected deficits of $8 trillion over the next decade. Most of this was the result of not paying for two wars, two tax cuts, and an expensive prescription drug program."

In short, it's all President Bush's fault. But Mr. Obama's assertion fails on three grounds.

First, the wars, tax cuts and the prescription drug program were implemented in the early 2000s, yet by 2007 the deficit stood at only $161 billion. How could these stable policies have suddenly caused trillion-dollar deficits beginning in 2009? (Obviously what happened was collapsing revenues from the recession along with stimulus spending.)

Second, the president's $8 trillion figure minimizes the problem. Recent CBO data indicate a 10-year baseline deficit closer to $13 trillion if Washington maintains today's tax-and-spend policies—whereby discretionary spending grows with the economy, war spending winds down, ObamaCare is implemented, and Congress extends all the Bush tax cuts, the Alternative Minimum Tax (AMT) patch, and the Medicare "doc fix" (i.e., no reimbursement cuts).

Under this realistic baseline, the 10-year cost of extending the Bush tax cuts ($3.2 trillion), the Medicare drug entitlement ($1 trillion), and Iraq and Afghanistan spending ($515 billion) add up to $4.7 trillion. That's approximately one-third of the $13 trillion in baseline deficits—far from the majority the president claims.

Third and most importantly, the White House methodology is arbitrary. With Washington set to tax $33 trillion and spend $46 trillion over the next decade, how does one determine which policies "caused" the $13 trillion deficit? Mr. Obama could have just as easily singled out Social Security ($9.2 trillion over 10 years), antipoverty programs ($7 trillion), other Medicare spending ($5.4 trillion), net interest on the debt ($6.1 trillion), or nondefense discretionary spending ($7.5 trillion).

There's no legitimate reason to single out the $4.7 trillion in tax cuts, war funding and the Medicare drug entitlement. A better methodology would focus on which programs are expanding and pushing the next decade's deficit up.

• Declining revenues are driving future deficits. The fact is that rapidly increasing spending will cause 100% of rising long-term deficits. Over the past 50 years, tax revenues have deviated little from their 18% of gross domestic product (GDP) average. Despite a temporary recession-induced dip, CBO projects that even if all Bush tax cuts are extended and the AMT is patched, tax revenues will rebound to 18.2% of GDP by 2020—slightly above the historical average. They will continue growing afterwards.

Spending—which has averaged 20.3% of GDP over the past 50 years—won't remain as stable. Using the budget baseline deficit of $13 trillion for the next decade as described above, CBO figures show spending surging to a peacetime record 26.5% of GDP by 2020 and also rising steeply thereafter.

Putting this together, the budget deficit, historically 2.3% of GDP, is projected to leap to 8.3% of GDP by 2020 under current policies. This will result from Washington taxing at 0.2% of GDP above the historical average but spending 6.2% above its historical average.

Entitlements and other obligations are driving the deficits. Specifically, Social Security, Medicare, Medicaid and net interest costs are projected to rise by 5.4% of GDP between 2008 and 2020. The Bush tax cuts are a convenient scapegoat for past and future budget woes. But it is the dramatic upward arc of federal spending that is the root of the problem.

[Snoopy]

War ain't cheap.

[Malice]

EAT THE RICH! - YouTube

EAT THE RICH! - YouTube
Video: click to display

But really, how often do you hear leftists bring up repealing the Bush tax cuts on the wealthy? It's like they think we'll be drowning in money if we did. I can just imagine them deciding on a ton of new spending based on completely unrealistic projections of the revenue they'll receive.

[Snoopy]

Originally Posted by Malice

EAT THE RICH! - YouTube

But really, how often do you hear leftists bring up repealing the Bush tax cuts on the wealthy? It's like they think we'll be drowning in money if we did. I can just imagine them deciding on a ton of new spending based on completely unrealistic projections of the revenue they'll receive.

Anyone who says either "left" or "right" or claims either side is a proven retard and should get chemically castrated. Also, you are fat as shit and a spic. You're not a proper conservative like I am.

[TheSexyBeast821]

Good thing the budget deficit can be covered by taking loans from our own federal reserve bank, which creates money out of nothing.

[Rust]

IIT: Malice pretends that because some cherry-picked exaggerations may have been false or because other people have added to the deficit, that the Bush Tax Cuts didn't (also) add to the deficit (the main point made by the opposition).

[Malice]

Yeah, they did, I'm just saying that the cuts to the rich didn't contribute to it nearly as significantly as most people think.

[Rust]

Originally Posted by Malice

Yeah, they did, I'm just saying that the cuts to the rich didn't contribute to it nearly as significantly as most people think.

Yet the article is pretty bad in that regard too. For instance, it starts off citing a comment by John Kerry. The problem? Kerry wasn't talking about the extension of tax-cuts or the current deficit, he was talking about the deficit 8 years ago. Saying "the tax cuts for those earning more than $250,000 are responsible for just 4% of the swing [in 2011]" completely robs his comment of the context.

[crazzyass]

Originally Posted by TheSexyBeast821

Good thing the budget deficit can be covered by taking loans from our own federal reserve bank, which creates money out of nothing.

Oh my God you are literally dumb at everything. Is there any subject or field that you have legitimate knowledge of? The Federal Reserve does not "create money out of nothing" and the conservative myths about the FR being an evil organization are far-fetched and unfounded.

[TheSexyBeast821]

Originally Posted by crazzyass

Oh my God you are literally dumb at everything. Is there any subject or field that you have legitimate knowledge of? The Federal Reserve does not "create money out of nothing" and the conservative myths about the FR being an evil organization are far-fetched and unfounded.

What does the Federal Reserve create money out of then? Besides paper and ink of course.

[crazzyass]

Originally Posted by TheSexyBeast821

What does the Federal Reserve create money out of then? Besides paper and ink of course.

http://en.wikipedia.org/wiki/Federal_Reserve_System

I'll leave this here.

Read it and then come back to me with any questions you have.

[TheSexyBeast821]

Originally Posted by crazzyass

http://en.wikipedia.org/wiki/Federal_Reserve_System

I'll leave this here.

Read it and then come back to me with any questions you have.

So the U.S. Treasury prints the money at the behest of the Federal Reserve. The money still comes without liability other than inflation, which can be controlled through the illusion of scarcity.

[crazzyass]

Originally Posted by TheSexyBeast821

So the U.S. Treasury prints the money at the behest of the Federal Reserve. The money still comes without liability other than inflation, which can be controlled through the illusion of scarcity.

...how do you suggest having a currency if you don't like that system then?

[Sir Cornwell]

What really matters is that politicians are able to avoid personal/party blame while assigning the blame to any/every one else.

[TheSexyBeast821]

Originally Posted by crazzyass

...how do you suggest having a currency if you don't like that system then?

Who said I don't like that system? I think we should use it much more instead of borrowing from foreign countries (if we even do borrow from foreign countries as much as the fear-mongers would have you believe).

[Sir Cornwell]

Next: people who'll post that debt is is completely unimportant as it doesn't have to ever be payed off.

Immediately following: I post my Presidential Campaign Platform where I submit that if elected I will annul any and all Federal Taxation as completely unnecessary. The Federal government will just run on the money it prints.

The Treasury will print lots!

[TheSexyBeast821]

Originally Posted by Sir Cornwell

Next: people who'll post that debt is is completely unimportant as it doesn't have to ever be payed off.

Immediately following: I post my Presidential Campaign Platform where I submit that if elected I will annul any and all Federal Taxation as completely unnecessary. The Federal government will just run on the money it prints.

The Treasury will print lots!

If you destroy the illusion of scarcity, the economy dies.

[Sir Cornwell]

Originally Posted by TheSexyBeast821

If you destroy the illusion of scarcity, the economy dies.

But everyone will have cupboards full of US $20's!

[crazzyass]

Originally Posted by TheSexyBeast821

Who said I don't like that system? I think we should use it much more instead of borrowing from foreign countries (if we even do borrow from foreign countries as much as the fear-mongers would have you believe).

Most people who misunderstand that the Federal Reserve "prints money" think so because printing money out of thin air would be bad for the economy.

Borrowing has far more benefit, I believe. No inflation involved in borrowing currently existing money.

[Trix Are For Kids]

I think the simple bottom line here, instead of trying to say who's to blame:

Is that if the government spends more money than it receives (in taxes or however), it will put itself in more debt. End story; anybody who argues that is ignoring common sense. Does it really fucking matter at this point who got us into it? No.

If you spend more money than you earn, you will be in debt. The solution is to spend less than you receive; it doesn't quite matter how you do it, whether by increasing taxes or by spending less. Here's an analogy: if you own a bread shop, eat bread, make bread and also buy bread from others, and you find yourself short on income, what do you do? Either charge more for the bread to your customers, get a better deal from the people you buy from, or eat less. Any way is a viable option; doing all of them is the most effective.

This is coming from somebody who knows very little about government but a bit about debt. Don't spend more than you have, even druggies know that. My parents taught me that when I was about 6. Fuck.

[crazzyass]

Originally Posted by Trix Are For Kids

I think the simple bottom line here, instead of trying to say who's to blame:

Is that if the government spends more money than it receives (in taxes or however), it will put itself in more debt. End story; anybody who argues that is ignoring common sense. Does it really fucking matter at this point who got us into it? No.

If you spend more money than you earn, you will be in debt. The solution is to spend less than you receive; it doesn't quite matter how you do it, whether by increasing taxes or by spending less.

This is coming from somebody who knows very little about government but a bit about debt. Don't spend more than you have, even druggies know that. My parents taught me that when I was about 6. Fuck.

This is absolutely true.

Following from your point, if we look at spending vs. revenue, our spending isn't too far out of whack. Obama has raised it very, very little; less so than any previous President for decades. That's including stimulus spending.

However, our revenue is lower than it's been in decades. So low, in fact, that cutting most of the federal government that Republicans want cut would not balance the budget even a little bit.

What happened is this: programs were started and funded with taxes. When Republicans achieved power, they cut taxes without ending these programs. So the programs continue along without any money to fund them, and here we are. Then they claim we spend too much. This is a lie: we don't raise enough money.

It'd be like you have a decent middle-class living, nothing extravagant or beyond your means. Then, with no reason, you quit your job and continue spending at those modest levels. The spending can be minuscule, but if you have no revenue then of course it's disastrous.

Republicans engineer all these crises, then shift the blame to the other party. It's only been three short years since Bush's overwhelming incompetence in nearly everything he touched, and people have forgotten all of it.

[Shrike]

The deficit and debt has increased a pretty huge amount under Obama. Those bailouts and increased social programs and stimulus and still ongoing wars ain't cheap. The bank bailouts came with basically no strings attached and have not prevented a future meltdown. The stimulus has not worked at all, and has made inflation worse. The US has moved from the stock market bubble, to the housing bubble, and now a government/Fed bubble, without really stopping and owning up to the problems in it's economy. The next crash is going to be catastrophic, the longer they spend like they are the worse it'll be.

I don't understand the rationale that you're in deep debt, and the way to get out of that debt is to spend more and go in deeper? Spending money and going into debt to buy tangible assets like factories and machinery that then make you money is worthwhile. Going into debt to finance your existing debt or to prop up "consumption" is completely counter-productive.

Bush spent a lot and cut taxes. Obama's on course to spend even more and has not repealed the tax cuts. Meet the new boss, same as the old fucking boss.

[crazzyass]

Originally Posted by Shrike

The deficit and debt has increased a pretty huge amount under Obama. Those bailouts and increased social programs and stimulus and still ongoing wars ain't cheap. The bank bailouts came with basically no strings attached and have not prevented a future meltdown. The stimulus has not worked at all, and has made inflation worse. The US has moved from the stock market bubble, to the housing bubble, and now a government/Fed bubble, without really stopping and owning up to the problems in it's economy. The next crash is going to be catastrophic, the longer they spend like they are the worse it'll be.

I don't understand the rationale that you're in deep debt, and the way to get out of that debt is to spend more and go in deeper? Spending money and going into debt to buy tangible assets like factories and machinery that then make you money is worthwhile. Going into debt to finance your existing debt or to prop up "consumption" is completely counter-productive.

Bush spent a lot and cut taxes. Obama's on course to spend even more and has not repealed the tax cuts. Meet the new boss, same as the old fucking boss.

Republicans point blank told him that if he wouldn't renew the cuts for the wealthy, they'd let them expire for all Americans. There's not much he's been able to do.

[TheSexyBeast821]

Originally Posted by crazzyass

Most people who misunderstand that the Federal Reserve "prints money" think so because printing money out of thin air would be bad for the economy.

Borrowing has far more benefit, I believe. No inflation involved in borrowing currently existing money.

Being indebted to foreign powers is worse than being indebted to yourself with the liability of inflation, especially since inflation can be curtailed if the money printing is just kept a secret. More money in circulation doesn't inherently cause inflation, it is the knowledge of more money being in circulation that causes inflation.

[Trix Are For Kids]

I think what the issue REALLY is, is that nobody is actually willing to say what everybody knows.

We have three options.

Yes, we do need to cut government spending and keep taxes the same.

OR

Yes, we do need to keep spending the same and increase taxes

OR

(The one that spreads the damage out more evenly, and in my opinion the smartest)

Combine less government spending with increased taxes.

I can't stand people who look at it from one way or the other, either saying

"oh but if the government doesn't spend enough the country won't benefit from increased education, better military, giving people jobs, paying less healthcare for the poor and sick because there will be less that needs repairing"


or the other side to it "if we tax too much people won't spend, companies will lay people off, business won't want to expand"

Both ways of thinking about it are completely, irrevocably, 100% fucking true, to a point.

THE BOTTOM LINE IS WE NEED TO MAKE MORE THAN WE SPEND.

All in all, a hit needs to be taken somewhere. The ship won't stay afloat if it's not, but everybody just wants to defend their reasoning to the death instead of seeing the truth.

[MediumD]

Originally Posted by Shrike

Going into debt to finance your existing debt or to prop up "consumption" is completely counter-productive.

Until you realize that "consumption" means "increased tax revenue."

[Shrike]

Originally Posted by MediumD

Until you realize that "consumption" means "increased tax revenue."

Which they are spending on stimulus and quantitative easing and other various money printing far faster than it's coming in.

And yeah, strictly speaking Obama has no control over whether the Bush tax cuts expire or not, that's up to Congress. If it takes getting rid of the most recent tax breaks for the less well off, then it has to be done. He shouldn't be giving away taxes with a deficit skyrocketing up at billions of dollars a month.

[moron]

Originally Posted by Snoopy

Anyone who says either "left" or "right" or claims either side is a proven retard and should get chemically castrated.