United Liberty
Spending is to blame for deficits, not tax cuts
Thu, 07/15/2010 - 3:03pm | posted by Jason Pye
Brian Riedl argues that the tax cuts passed by Congress in 2001 did not cause the runaway deficits we’ve seen over the last several years, but that runaway spending is to blame:
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.
The problem with George W. Bush’s economic policies, which were aided by a Republican Congress, were not tax cuts, it was spending. As Riedl points out, we had two costly wars, the passage of a prescription drug entitlement and an increase in non-defense discretionary spending that rivals Lyndon B. Johnson (not to mention bailouts).
Not to be pedantic here, but aren’t deficits caused by politicians? A tax cut cannot cause a budget deficit; only a politician who votes for a tax cut and not a decrease in spending to match the cut in revenues. Likewise, increased spending cannot be blamed for the deficit, either; it is the politicians’ fault for not increasing revenues to match the increased spending.
In all states except Vermont, there is some rule to balance a budget. Ostensibly, this means that all spending was met with equal or greater amounts of revenue, regardless if spending was cut or increased. This happened because state politicians were forced by law to do so. In the absence of such a rule at the federal level, it is the decisions by politicians that determine the level of revenue and spending and therefore the deficit. So let’s not get mired into an argument whether tax cuts or spending caused the deficit, because it is the politicians that set the level of the deficit.
Agreed.
Couldn’t it be argued that the tax cuts, which decreased incoming revenue, weren’t offset by appropriate spending cuts? I’m not necessarily disagreeing with your central line of argument, but it seems that we’re both approaching it from different ends?
That is, the Bush Administration - particularly from a conservative point of view - failed to match up that decrease in revenue with an appropriate decrease in spending? It would seem to me that many progressives would argue that continued upticks in spending would be ‘OK’ and the root of the problem is that the tax cuts themselves were implemented, thus hindering a revenue stream. You’re approaching it from the other end.
Is that a fair assessment?
Couldn’t it be argued that the tax cuts, which decreased incoming revenue, weren’t offset by appropriate spending cuts?
Sure, and I’ve made an argument similar to that before.