Spending is to blame for deficits, not tax cuts
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).