Tax and Spend
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A report released Monday by the non-partisan Congressional Budget Office concluded that "the federal government will run a record $477 billion budget deficit this year and could accumulate nearly $1.9 trillion in additional debt through 2014." The report shows the deficit over the next decade will be $1 trillion higher than previously projected. Former Bush Administration economist and CBO director Douglas Holtz-Eakin warned that the President's plan to extend $1 trillion in new tax cuts -- increasing the size of the deficit -- could have a "cumulative corrosive effect on capital accumulation, on national saving and on productivity." (Just be sure not to mention that on CBS.) American Progress' Gene Sperling, in recent congressional testimony, explains why deficits really do matter to our future.
Shockingly, the CBO is underestimating the true extent of our nation's budgetary woes. If the President were to succeed in making his tax cuts permanent, the "deficit could reach nearly $3.5 trillion over the next decade." (If the tax cuts were allowed to expire, the government would run a small surplus by 2013.) Additionally, the bipartisan and necessary effort to prevent a rise in the alternative minimum tax will add another $469 billion to the deficit over the next ten years. Analyses by the Brookings Institution, Goldman, Sachs, and Decision Economics all found that, over the next ten years, the Bush Administration's economic policy would lead to deficits of $5 trillion dollars or more over the next ten years. The Administration has repeatedly claimed that despite record tax cuts, deficits will diminish. An American Progress analysis says there's no way that's true.
In his State of the Union speech the President said that the way to control deficits is to "cut wasteful spending." But an analysis of the CBO report by the Center for Budget and Policy Priorities reveals that "spending will constitute 20.0% of GDP in 2004, a lower level than in any year from 1975 through 1996." The real problem? The President's massive tax cuts to the wealthy. Tax revenues are projected to be just 15.8% of GDP in 2004, the lowest level since 1950. Revenue from income taxes has plummeted to just 8% of GDP, the lowest level since 1942. Meanwhile, Paul Krugman writes, "taxes that fall mainly on middle-income Americans, like the payroll tax, are still near historic highs." The decline in revenue, according Krugman's analysis, "has come almost entirely from taxes that are mostly paid by the richest 5 percent of families: the personal income tax and the corporate profits tax."
Treasury Secretary John Snow, in a speech via satellite to a business conference in London, dismisses mounting deficit numbers as "not historically out of range." He assured his corporate audience that "President Bush is serious about the deficit." According to the Administration, being serious about the deficit means aspiring to cut record high deficits by 50% over five years. It is a curious measure of success considering that, when Bush took office, there was "$5.6 trillion in budget surpluses projected between 2002 and 2011." Under the President's economic stewardship, those record surpluses have turned into a $2.9 trillion dollar deficit over the same period. For those of you doing the math, that is an $8.5 trillion dollar swing.
Majority Leader Tom DeLay (R-TX) didn't let nasty facts get in the way of his tax cutting mantra. Without any apparent justification, DeLay said that "if we had not cut taxes, we would have less money than we have today." In fact, if DeLay had studied the President's own budget document, he would see Table S-3, which shows that if Congress had not enacted the massive tax cuts, the budget would be back in surplus but with the tax cuts, massive deficits extend indefinitely.