Tax Cuts, Increased Spending to Blame for Increased Deficits

[Toro]

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

From the Pew Foundation.

In January 2001, the Congressional Budget Office (CBO) projected under a current law baseline that the federal government would erase its debt in 2006. By 2011, the U.S. government would be $2.3 trillion in the black.

The reality, of course, has turned out to be far different: the U.S. will likely owe $10.4 trillion this year, its largest debt relative to the economy since 1950.

What caused this $12.7 trillion shift? This fiscal fact sheet by the non-partisan Pew Fiscal Analysis Initiative … shows that the main drivers of the debt, by far, are the tax cuts and spending increases enacted since 2001. …

Between 2001 and 2011, about two-thirds (68 percent) of the $12.7 trillion growth in federal debt has been due to new legislation. Forty percent of this legislative growth was the result of tax cuts enacted after January 2001, and 60 percent resulted from spending increases. Technical and economic revisions combined caused about one quarter (27 percent) of the growth, and changes in other means of financing accounted for 6 percent.

Specific Policies & Legislation
Legislative drivers can be further broken down using CBO cost estimates for six high-profile laws enacted over the last 10 years as well as the cost of the operations in Iraq and Afghanistan …

The five most significant legislative drivers are the 2001/2003 tax cuts (13 percent of the 10-year shift), growth in net interest due to legislative changes (11 percent), growth in nondefense spending (10 percent), the operations in Iraq and Afghanistan (10 percent), and the 2009 stimulus (6 percent). The non-defense spending growth is mostly the result of annual discretionary appropriations increasing faster than CBO anticipated back in January 2001. Of the other tax cuts, about half of the debt effect is accounted for by the combined cost of three pieces of tax legislation. The rest is due to other legislation.

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%).

 

[Toro]

Here are future deficits, in a picture.

Uwe E. Reinhardt: The Case for Higher Taxes - NYTimes.com

 

[Care4all]

there is a case for higher taxes, but is NOW the right time?

 

[Toro]

there is a case for higher taxes, but is NOW the right time?

No.

 

[iamwhatiseem]

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.

 

[Wiseacre]

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

From the Pew Foundation.

In January 2001, the Congressional Budget Office (CBO) projected under a current law baseline that the federal government would erase its debt in 2006. By 2011, the U.S. government would be $2.3 trillion in the black.

The reality, of course, has turned out to be far different: the U.S. will likely owe $10.4 trillion this year, its largest debt relative to the economy since 1950.

What caused this $12.7 trillion shift? This fiscal fact sheet by the non-partisan Pew Fiscal Analysis Initiative … shows that the main drivers of the debt, by far, are the tax cuts and spending increases enacted since 2001. …

Between 2001 and 2011, about two-thirds (68 percent) of the $12.7 trillion growth in federal debt has been due to new legislation. Forty percent of this legislative growth was the result of tax cuts enacted after January 2001, and 60 percent resulted from spending increases. Technical and economic revisions combined caused about one quarter (27 percent) of the growth, and changes in other means of financing accounted for 6 percent.

Specific Policies & Legislation
Legislative drivers can be further broken down using CBO cost estimates for six high-profile laws enacted over the last 10 years as well as the cost of the operations in Iraq and Afghanistan …

The five most significant legislative drivers are the 2001/2003 tax cuts (13 percent of the 10-year shift), growth in net interest due to legislative changes (11 percent), growth in nondefense spending (10 percent), the operations in Iraq and Afghanistan (10 percent), and the 2009 stimulus (6 percent). The non-defense spending growth is mostly the result of annual discretionary appropriations increasing faster than CBO anticipated back in January 2001. Of the other tax cuts, about half of the debt effect is accounted for by the combined cost of three pieces of tax legislation. The rest is due to other legislation.

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%).

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.

 

[Toro]

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.

 

[percysunshine]

Raising taxes decreases tax revenues....duh

 

[Toro]

Raising taxes decreases tax revenues....duh

This is incorrect. There is zero empirical evidence suggesting raising income taxes in the US lowers revenues. The empirical evidence strongly concludes the opposite.

 

[Wiseacre]

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.

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.

 

[percysunshine]

Raising taxes decreases tax revenues....duh

This is incorrect. There is zero empirical evidence suggesting raising income taxes in the US lowers revenues. The empirical evidence strongly concludes the opposite.

BS. There are a million of these;

Tax rates vs. revenues - Washington Times

 

[Toro]

Raising taxes decreases tax revenues....duh

This is incorrect. There is zero empirical evidence suggesting raising income taxes in the US lowers revenues. The empirical evidence strongly concludes the opposite.

BS. There are a million of these;

Tax rates vs. revenues - Washington Times

There is so much ignorance about economics on the right.

http://www.usmessageboard.com/economy/51527-tax-cuts-dont-pay-for-themselves-gop-economists.html
http://www.usmessageboard.com/econo...know-if-bush-tax-cuts-pay-for-themselves.html
http://www.usmessageboard.com/economy/51044-republican-supply-side-tax-folly.html
http://www.usmessageboard.com/economy/144973-the-laffer-curve-bends-at-an-80-rate-of-income-tax.html

 

[Toro]

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.

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.

The models aren't linear. The econometric models have multipliers and factors for tax and spending affects.

 

[Wiseacre]

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.

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.

The models aren't linear. The econometric models have multipliers and factors for tax and spending affects.

And you know this how? Not being dick, but you know how us righties are, we kinda like to see some evidnece.

 

[Toro]

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.

The models aren't linear. The econometric models have multipliers and factors for tax and spending affects.

And you know this how? Not being dick, but you know how us righties are, we kinda like to see some evidnece.

Why do you assume that they don't? Factors are tested to account for multiplier affects on the economy. Econometrics isolates differing factors to empirically test the affects of different policies. One could turn around and ask a similar question to you, i.e. why should we assume that tax cuts have any affect on the economy at all? How do you know they have a positive affect? Or do just take that on blind faith? Of course, the answer is exactly the same. We can empirically test the data to isolate the affects of the tax cuts.

If you want some evidence, look at the empirical research done by George Bush's own chair of economic advisers on tax cuts, Greg Mankiw, in the post above. He estimates that for every $1 in income tax cuts, the government loses 83 cents in revenues.

And I did phrase it wrong. My mistake. Some of the variables are linear. Some are not. But, like Mankiw concluded, there is not a 1 for 1 trade-off.

 

[Wiseacre]

The models aren't linear. The econometric models have multipliers and factors for tax and spending affects.

And you know this how? Not being dick, but you know how us righties are, we kinda like to see some evidnece.

Why do you assume that they don't? Factors are tested to account for multiplier affects on the economy. Econometrics isolates differing factors to empirically test the affects of different policies. One could turn around and ask a similar question to you, i.e. why should we assume that tax cuts have any affect on the economy at all? How do you know they have a positive affect? Or do just take that on blind faith? Of course, the answer is exactly the same. We can empirically test the data to isolate the affects of the tax cuts.

If you want some evidence, look at the empirical research done by George Bush's own chair of economic advisers on tax cuts, Greg Mankiw, in the post above. He estimates that for every $1 in income tax cuts, the government loses 83 cents in revenues.

And I did phrase it wrong. My mistake. Some of the variables are linear. Some are not. But, like Mankiw concluded, there is not a 1 for 1 trade-off.

After spending some time researching, I am persuaded that income tax cuts do not come close to paying for themselves by means of economic growth, in terms of revenue. I saw the reference to 83 cents, but I also saw the loss in capital taxes is about 50%, so it does depend on what kind of tax cut you have. Those numbers come from a study that is pretty wonky, I looked at it but wasn't completely sure what it said.

However, I am not yet convinced that the increase in economic growth does not yield some reductions in gov't spending due to higher employment numbers. Less money going out in unemployment checks, foodstamps, and in healthcare payments. And it may well be that the economic improvement has positive results that do not show up on the gov'ts balance sheet. That's subjective on my part, there's no data to back it up, but I believe an employed person will consume less gov't resources over somebody who doesn't have a job. And what about the next generation that doesn't grow up in a household that has been dependent on the gov't? I'm thinking it's money well spent instead of more gov't spending where the gov't decides who the winners and losers are for political reasons.

 

[expat_panama]

...After spending some time researching, I am persuaded that income tax cuts do not come close to paying for themselves by means of economic growth, in terms of revenue...

Words mean things, and the word "research" should mean looking at the record:

Revenue had been decreasing before, and has increased since the '03 cuts. For years after the cuts revenue soared so much the deficit shrank, and even with Obama's tax hikes revenue is still higher than before the '03 cuts.

 

[Care4all]

...After spending some time researching, I am persuaded that income tax cuts do not come close to paying for themselves by means of economic growth, in terms of revenue...

Words mean things, and the word "research" should mean looking at the record:

Revenue had been decreasing before, and has increased since the '03 cuts. For years after the cuts revenue soared so much the deficit shrank, and even with Obama's tax hikes revenue is still higher than before the '03 cuts.

the Bush tax cuts began in 2001 didn't they? We all got a $300-600 tax rebate check in august of 2001 off of the first round of tax cuts, no?

 

[Care4all]

Also, how does the Housing bubble fit in to this? Don't you think the housing boom is what actually made our economy grow and tax revenue rise, more involved in Bank loan 'creativity' and low interest rates from the Fed?

 

[expat_panama]

...the Bush tax cuts began in 2001 didn't they? ...

Not sure if that's a rhetorical question, if you'd honestly wanted to know you could've just googled w/ keywords 'tax cut 2001 2003' and seen that the '03 cuts were the biggest: