WSJ: Spending, Not Tax Cuts, Cause of Debt
President Obama and congressional Democrats are blaming their trillion-dollar budget deficits on the Bush tax cuts of 2001 and 2003. Letting these tax cuts expire is their answer. Yet the data flatly contradict this “tax cuts caused the deficits” narrative. Consider the three most persistent myths:
• The Bush tax cuts wiped out last decade’s budget surpluses. Sen. John Kerry (D., Mass.), for example, has long blamed the tax cuts for having “taken a $5.6 trillion surplus and turned it into deficits as far as the eye can see.” That $5.6 trillion surplus never existed. It was a projection by the Congressional Budget Office (CBO) in January 2001 to cover the next decade. It assumed that late-1990s economic growth and the stock-market bubble (which had already peaked) would continue forever and generate record-high tax revenues. It assumed no recessions, no terrorist attacks, no wars, no natural disasters, and that all discretionary spending would fall to 1930s levels.
The projected $5.6 trillion surplus between 2002 and 2011 will more likely be a $6.1 trillion deficit through September 2011. So what was the cause of this dizzying, $11.7 trillion swing? I’ve analyzed CBO’s 28 subsequent budget baseline updates since January 2001. These updates reveal that the much-maligned Bush tax cuts, at $1.7 trillion, caused just 14% of the swing from projected surpluses to actual deficits (and that is according to a “static” analysis, excluding any revenues recovered from faster economic growth induced by the cuts).