Tax Cuts, Increased Spending to Blame for Increased Deficits

Discussion in 'Economy' started by Toro, May 13, 2011.

  1. Toro
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    Toro Diamond Member

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    And in other news, the sun rises in the east and sets in the west.

    From the Pew Foundation.

    http://www.pewtrusts.org/uploadedFi...ic_Policy/drivers_federal_debt_since_2001.pdf

    In 2001, the CBO estimated that the budget would have an accumulated surplus of $2.3 trillion in 2011. Instead, we have an accumulated debt of $10.4 trillion, a $12.7 trillion swing. The Pew Foundation estimates that 68% ($8.7 trillion) is due to legislation over the past decade. Pew broke down the causes for this swing as follows (dollars in trillions).


    Bush tax cuts 13% $1.7
    Interest on increased borrowing 11% $1.4
    Iraq/Afghanistan wars 10% $1.3
    Other non-defense spending 10% $1.3
    Stimulus 6% $0.8
    Other tax cuts 5% $0.6
    Other defense spending 5% $0.6
    Extension of Bush tax cuts 3% $0.4
    Medicare Part D 2% $0.3
    Total 65% $8.3

    Other means of financing 6% $0.8
    Incorrect forecasting 29% $3.7

    Stimulus, extension of Bush cuts 9% $1.1

    Tax cuts 23% $2.9
    Non-defense spending 16% $2.0
    War/defense spending 15% $1.9
    Interest on increased borrowing 11% $1.4

    I did not attribute the changes in the means of financing, which Pew allocates 50% to legislation over the past decade. Half of 6% added to 65% is the 68% cited by Pew.

    Had there been no war, no tax cuts and no increased spending, the accumulated deficit would have been $1.4 trillion instead of a $2.3 trillion surplus forecasted by the CBO in 2001. This is due to lower than expected baseline economic growth.

    Tax cuts contributed $2.9 trillion to the increase in debt, non-defense spending $2 trillion and war and defense $1.9 trillion. Allocating the $1.4 trillion of interest on increased borrowing to the three categories, tax cuts contributed $3.5 trillion (43% of total excluding financing changes), non-defense spending $2.4 trillion (30%) and war and defense $2.3 trillion (28%).
     
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  2. Toro
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    Toro Diamond Member

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  3. Care4all
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    Care4all Warrior Princess Supporting Member

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    there is a case for higher taxes, but is NOW the right time?
     
  4. Toro
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    Toro Diamond Member

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    No.
     
  5. iamwhatiseem
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    iamwhatiseem Gold Member

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    So what we really learn here is that gov't predictions are always, always, always the opposite of reality.
    There is one economic law that is as concrete as gravity:
    If you reduce your revenue while increasing your expenses...you will run out of money.
     
  6. Wiseacre
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    Wiseacre Retired USAF Chief Supporting Member

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    PEW says the tax cuts were 13%, 1.7 billion. Then you say it was 2.9 billion. And then you allocate interest on top of that to come up with 3.5 trillion. Gotta say, going from 1.7 trill to 3.5 trill is something of a stretch, maybe you can explain that futher?

    Now let me ask another question, which I didn't see mentioned anywhere. What would the deficit have really been if the tax cuts had not been done? I know about the 1.7 trillion in less revenue, which is actually a linear estimate that does not include underreporting or evasion. But what would the effect on the economy have been? I'm not gonna claim that the tax cuts paid for themselves, but there is a flipside to consider. Might have been a more sluggish economy with fewer jobs and higher unemployment. So more money going out in expenditures and less money coming in for social security and medicare taxes. Plus lower wages for some, which means less income tax and also less business and capital gains taxes.
     
    Last edited: May 30, 2011
  7. Toro
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    Toro Diamond Member

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    The Bush tax cuts were $1.7 trillion. Those were to expire this year. Total tax cuts were $2.9 trillion. The remaining tax cuts include an extension of those tax cuts plus other tax cuts. Download the file and you can see.
     
  8. percysunshine
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    percysunshine Gold Member

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    Raising taxes decreases tax revenues....duh
     
  9. Toro
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    Toro Diamond Member

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    This is incorrect. There is zero empirical evidence suggesting raising income taxes in the US lowers revenues. The empirical evidence strongly concludes the opposite.
     
    Last edited: May 30, 2011
  10. Wiseacre
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    Wiseacre Retired USAF Chief Supporting Member

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    Okay, I got it. Don't agree with it, but I understand it. When they do these calculations they do it in a linear fashion, this was the revenue we got so if the tax rate had been higher then we woulda got this much more if everythng else stays the same. Except everything doesn't stay the same, you cannot assume the economy would have grown as it did if there had been no tax cuts. Those tax cuts were not just for income, but also capital gains and business taxes, which contrary to liberal thought do indeed influence economic prosperity. How much more spending would we have had to do for unemployment benefits and healthcare for those additional unemployed? While I wouldn't say the debt caused by the tax cuts would have been wiped out, it may be that money was well spent.
     

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