Bruce Bartlett, the longtime Republican economist who has spent the last several years showing that the Republican party is entirely out of touch on matters of budget and taxes, has a column based on a new CBO report that shows that if we’d left tax rates the same in 2001 and 2003, much of the debt accumulated since then could have been avoided.
In January 2001, the office projected that the federal government would run a total budget surplus of $3.5 trillion through 2008 if policy was unchanged and the economy continued according to forecast. In fact, there was a deficit of $5.5 trillion.
The projected surplus was primarily the result of two factors. First was a big tax increase in 1993 that every Republican in Congress voted against, saying that it would tank the economy. This belief was wrong. The economy boomed in 1994, growing 4.1 percent that year and strongly throughout the Clinton administration.
The second major contributor to budget surpluses that emerged in 1998 was tough budget controls that were part of the 1990 and 1993 budget deals. The main one was a requirement that spending could not be increased or taxes cut unless offset by spending cuts or tax increases. This was known as Paygo, for pay as you go.
But the Republicans in Congress eliminated Paygo in 2002 and pushed through tax cuts in 2001 and 2003, claiming that it would cause an economic boom. It didn’t, of course. And we’re still paying for the debt created by the dramatically reduced revenue:
The 2001 tax cut did nothing to stimulate the economy, yet Republicans pushed for additional tax cuts in 2002, 2003, 2004, 2006 and 2008. The economy continued to languish even as the Treasury hemorrhaged revenue, which fell to 17.5 percent of the gross domestic product in 2008 from 20.6 percent in 2000. Republicans abolished Paygo in 2002, and spending rose to 20.7 percent of G.D.P. in 2008 from 18.2 percent in 2001.
According to the C.B.O., by the end of the Bush administration, legislated tax cuts reduced revenues and increased the national debt by $1.6 trillion. Slower-than-expected growth further reduced revenues by $1.4 trillion.
However, the Bush tax cuts continued through 2010, well into the Obama administration. These reduced revenues by another $369 billion, adding that much to the debt. Legislated tax cuts enacted by President Obama and Democrats in Congress reduced revenues by an additional $407 billion in 2009 and 2010. Slower growth reduced revenues by a further $1.3 trillion. Contrary to Republican assertions, there were no additional revenues from legislated tax increases…
Putting all the numbers in the C.B.O. report together, we see that continuation of tax and budget policies and economic conditions in place at the end of the Clinton administration would have led to a cumulative budget surplus of $5.6 trillion through 2011 – enough to pay off the $5.6 trillion national debt at the end of 2000.
Tax cuts and slower-than-expected growth reduced revenues by $6.1 trillion and spending was $5.6 trillion higher, a turnaround of $11.7 trillion. Of this total, the C.B.O. attributes 72 percent to legislated tax cuts and spending increases, 27 percent to economic and technical factors. Of the latter, 56 percent occurred from 2009 to 2011.
The vastly increased spending on the Iran and Afghanistan wars would still have boosted the deficit, but not nearly as much as it has been with the reduced revenue from the tax cuts. And all we had to do is leave the taxes where they were in the 90s. But to hear the tea partiers tell it, we must have been a tyrannical socialist country in the 90s, though no one seems to have noticed it.
19 comments
1 ping
Skip to comment form ↓
Modusoperandi
June 15, 2012 at 10:48 am (UTC -4) Link to this comment
“Iran”?
criticaldragon1177
June 15, 2012 at 10:49 am (UTC -4) Link to this comment
Ed Brayton,
I imagine Rush Limbaugh hates you! : )
Seriously through I should study economics a bit more. I’ll be less likely to fall for baseless claims politicians make about what will help the economy.
keithb
June 15, 2012 at 10:52 am (UTC -4) Link to this comment
It just mystifies me that we would continue the tax cuts in the face of the wars. How did we expect to pay for them?
Being a fan of old movies, even the Disney shorts at the time were encouraging folks to share in the sacrifice and buy bonds, save scrap metal and recycle grease for glycerin.
Tabby Lavalamp
June 15, 2012 at 10:53 am (UTC -4) Link to this comment
I wonder how it would be if the “job creators” actually created good taxable jobs instead of shipping jobs to places with no minimum wage in order to create more profit so they can “create jobs”.
modus
June 15, 2012 at 10:58 am (UTC -4) Link to this comment
Dearest Ed Brayton,
It would appear that my lovely and entirely awesome son, Modusoperandi, has been banned. We hope that this was accidental or due to some sort of miscommunication, and that this can be rectified with a minimum of fuss.
Thank you for your time,
Modusoperandi’s Mom
ps: some sort of “contact” email thingy on your site would be nice.
bruceh
June 15, 2012 at 11:00 am (UTC -4) Link to this comment
Ed, I think you meant war with Iraq, not Iran.
ashleybell
June 15, 2012 at 11:03 am (UTC -4) Link to this comment
Exactly Ed. All of the “good old days” eras the teapartiers wax sentimental over were periods of higher and more reasonable tax rates
harold
June 15, 2012 at 11:10 am (UTC -4) Link to this comment
It’s called the “starve the beast” strategy.
I used to be friendly with some libertarian-oriented wingnuts back in the 90′s. That was partly because I was living in a western state where almost everyone has extreme political views, either idiosyncratic wingnuttery with a libertarian flavor, or not very coherent new age progressive-but-disorganized views. It was also partly because, as a progressive, in theory I do agree with real conservatives (not pro-corruption militaristic right wing authoritarians) on issues of actual waste, cronyism, subsidized inefficiency, and so on, which progressive oppose, and which conservatives used to oppose before they stopped doing so in terror of being labeled “RINOs”.
Anyway, people openly discussed the fact that the only way to destroy important and popular programs was to start with tax cuts and a popular military adventures, and let the deficit grow. Then argue “either we eliminate the programs* or we raise taxes, but we ‘have to do something about the deficit’ (which we deliberately created)”. *It’s taken for granted that the idea of cutting military spending can’t be raised.
It may or may not be that GWB, Dick Cheney, Karl Rove, or other such figures were deliberately setting up that strategy. If they weren’t, by coincidence, they accidentally did exactly what it called for.
Michael Heath
June 15, 2012 at 11:33 am (UTC -4) Link to this comment
Ed writes:
Bruce Bartlett isn’t an economist. He’s a right-winger (as opposed to a conservative), whose developed, executed, and administrated over economic policy; now he pontificates upon policy as compelling as anyone. I’d put him on a par with economist Alan Blinder and Joseph Stiglitz on the left.
Mr. Bartlett’s also one of the rare people in this country who is a right winger who can actually think critically and advocate in the best interests of the country and humanity in general, which is why I don’t refer to him as a conservative since those attributes appear to be effectively extinct within American conservatism.
I’ve long been a fan of his similar to how I respect Bill Clinton and Barack Obama; I don’t agree with much of their policy prescriptions but I respect both the quality of their arguments and the demonstrated success of their proposals when they’re executed and presided over. I happen to think more optimal policies exist I’d like to see championed. Some on the left, a purposeful path to single payer gov’t financed health care; others on the right, the eradication of taxes on businesses and true capital returns – “true” as opposed to income falsely posing as capital like we see when it comes to how hedge fund managers are paid.
Trebuchet
June 15, 2012 at 11:44 am (UTC -4) Link to this comment
The best description of Republican economic policies for the past 32 years came from a Republican, George H.W. Bush.
“Voodoo Economics”.
Michael Heath
June 15, 2012 at 11:55 am (UTC -4) Link to this comment
While it’s obviously true the Republicans are predominately to blame for the debt and the lack of economic growth in this country, Democrats have allowed themselves to be put in a box and are also partly to blame not so much for the current bulk of the debt, but instead current/future deficits.
The Bush tax cuts also cut the effective taxes of the four lowest income quintiles, not just top earners [1]. In fact some lower earning people fared even better than some of the top income categories. W. Bush cut them more than any previous modern president for the poor through middle class. That’s resulted in both the Obama Administration and the Democrats in general advocating for a tax hike only to the top earners as opposed to returning to either the Reagan, H.W. Bush, or Clinton era effective tax rates for the non-top quintiles as well.
I appreciate the Democrats dilemma, but they’re not as pure as they’re sometimes portrayed. In fact I think it’s bad policy for them to agree to huge entitlement cuts to solve the debt problem rather than increase the effective tax rates on all Americans while maintaining or even enhancing entitlements, the latter two aren’t even considered.
1] http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=456
Reginald Selkirk
June 15, 2012 at 12:23 pm (UTC -4) Link to this comment
As I recall; after greeting the U.S. invaders with flowers and song, the Iraqis would pay for the invasion themselves out of oil revenues.
Reginald Selkirk
June 15, 2012 at 12:26 pm (UTC -4) Link to this comment
If you only look at income tax rate brackets. But remember W also cut inheritance taxes, capital gains taxes and stock dividend taxes. Not a lot of minimum wage earners take advantage of those.
Michael Heath
June 15, 2012 at 12:42 pm (UTC -4) Link to this comment
Reginald Selkirk writes:
My cite includes those taxes. That’s why it correlates to the effective tax rate (total taxes paid divided by income) rather than merely noting their average income tax rate by income category.
Nibi
June 15, 2012 at 9:54 pm (UTC -4) Link to this comment
modus
IIRC, [email protected] gets to Ed. Try, say, [email protected] for starts. If no luck there, we can start a Free Modus! campaign.
modus
June 15, 2012 at 11:35 pm (UTC -4) Link to this comment
Nibi, I tried [email protected], but Mr Anything said there was nothing he could do. Then he wept. Then I gave him a hug. Also, herpes. But that’s another story entirely.
kagerato
June 15, 2012 at 11:55 pm (UTC -4) Link to this comment
There’s no debt problem. The whole subject is a sham, a ruse, propaganda.
How do you know you have a debt problem? When inflation is going through the roof. Where is inflation? ~2% a year. That’s nothing. When inflation is 8% and up we can talk.
Likewise, if interest rates had been hiked to try to restrain inflation (by discouraging private lending), then there might be some meaning in talking of this. Instead, one of the key Fed interest rates just hit a historic low.
Public debt is not a problem with the economy right now. Private debt is a huge problem and has been since the 2007-2008 financial bubble collapse. However, if you’re talking monetary policies that will deal with debt, what you want is inflation! Inflation dissolves debts and wealth equally. Low inflation does next to nothing, and deflation would be the worst possible outcome in this context.
Lack of demand and terrible priorities by the key actors (mostly corporations and state/local/federal governments) is the reason the economy flounders. Anyone who runs even a halfway sane economic analysis can see this plainly.
Want to solve this?
[1] Raise taxes on the rich (especially the very rich), yes, but lower them on the poor. High taxes incentivize the rich to spend in order to avoid the highest tax brackets. Low taxes on the poor stimulate demand by giving them money to spend.
[2] Have local, state, and federal governments spend more by hiring people to do the jobs that match their current needs. If states can’t borrow to spend, the federal government will have to give them the money since they can’t make their own.
[3] Don’t cut any significant domestic spending programs. Social Security, Medicare, etc. are feeding demand. Any deficit Medicare, for instance, creates is money fed into the economy that wouldn’t otherwise be there.
[4] Cut as many foreign spending programs as possible; mainly this is the military and war spending. This is money that effectively leaves the country or gets pocketed by “defense” contractors. It is the closest thing to waste in the budget.
[5] Raise the minimum wage. This will have ripple effects throughout the economy, pushing up wages generally. It helps the poor and middle class mainly, and generates a relatively large increase in demand for very little work.
[6] Regulate the banks. We can’t afford any more speculative bubbles based on nonsensical financial products whose only purpose is to obscure the actual risk of shifting money around and over-leveraging investments and debt.
[7] Simplify and purify business regulations by eliminating loopholes and broadening the language to cover cases that ought to be common sense (but aren’t covered). This disproportionately helps smaller businesses who cannot afford a team of lawyers to deal with the complexity of many laws, while simultaneously making it easier to prosecute offenses by large corporations.
[8] Reduce private debt. Mostly this is in the housing sector, so some kind of effective mortgage replacement/reduction program is necessary. The Obama administration’s attempts to deal with the issue have barely scratched the surface.
matthewhodson
June 16, 2012 at 10:10 am (UTC -4) Link to this comment
@modus (#4)
Usually here the tides go in, the tides go out…
modus
June 16, 2012 at 10:27 am (UTC -4) Link to this comment
matthewhodson, my account is not banned, apparently. The problem is that my replies contain too much awesome. True story.
Taxes, Revenue and Economic Growth : Futures Trader
June 15, 2012 at 2:09 pm (UTC -4) Link to this comment
[...] See on freethoughtblogs.com [...]