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Bruce Bartlett: Are the Bush Tax Cuts the Root of Our Fiscal Problem? ...

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July 26, 2011, 6:00 am89 Comments

Are the Bush Tax Cuts the Root of Our Fiscal Problem?
12/11/2012 8:35 AM

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Bruce Bartlett: Are the Bush Tax Cuts the Root of Our Fiscal Problem? ...

http://economix.blogs.nytimes.com/2011/07/26/are-the-bush-tax-cuts-the...

By BRUCE BARTLETT

Bruce Bartlett held senior policy roles in the administrations of Ronald Reagan and George H.W. Bush and served on the staffs of Representatives Jack Kemp and Ron Paul. Whether revenue should play any role in deficit reduction is at the root of the fiscal impasse between Congressional Republicans and President Obama. One factor underlying the hard-line Republican position that taxes must not be increased by even $1 is their assertion that the Bush tax cuts played no role in creating our deficit problem.
Today’s Economist

Perspectives from expert contributors. In a previous post, I noted that federal taxes as a share of gross domestic product were at their lowest level in generations. The Congressional Budget Office expects revenue to be just 14.8 percent of G.D.P. this year; the last year it was lower was 1950, when revenue amounted to 14.4 percent of G.D.P. But revenue has been below 15 percent of G.D.P. since 2009, and the last time we had three years in a row when revenue as a share of G.D.P. was that low was 1941 to 1943. Revenue has averaged 18 percent of G.D.P. since 1970 and a little more than that in the postwar era. At a similar stage in previous business cycles, two years past the trough, revenue was considerably higher: 18 percent of G.D.P. in 1977 after the 1973-75 recession; 17.3 percent of G.D.P. in 1984 after the 1981-82 recession, and 17.5 percent of G.D.P. in 1993 after the 1990-91 recession. Revenue was markedly lower, however, at this point after the 2001 recession and was just 16.2 percent of G.D.P. in 2003. The reason, of course, is that taxes were cut in 2001, 2002, 2003, 2004 and 2006. It would have been one thing if the Bush tax cuts had at least bought the country a higher rate of economic growth, even temporarily. They did not. Real G.D.P. growth peaked at just 3.6 percent in 2004 before fading rapidly. Even before the crisis hit, real G.D.P. was growing less than 2 percent a year. By contrast, after the 1982 and 1993 tax increases, growth was much more robust. Real G.D.P. rose 7.2 percent in 1984 and continued to rise at more than 3 percent a year for the balance of the 1980s. Real G.D.P. growth was 4.1 percent in 1994 despite widespread predictions by opponents of the 1993 tax increase that it would bring on another recession. Real growth averaged 4 percent for the balance of the 1990s. By contrast, real G.D.P. growth in the nonrecession years of the 2000s averaged just 2.7 percent a year — barely above the postwar average. Few people remember that a major justification for the 2001 tax cut was to intentionally slash the budget surplus. President Bush said this repeatedly during the 2000 campaign, and it was reiterated in his February 2001 budget document. In this regard, at least, the Bush-era tax cuts were highly successful. According to a recent C.B.O. report, they reduced revenue by at least $2.9 trillion below what it otherwise would have been between 2001 and 2011.

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12/11/2012 8:35 AM

Bruce Bartlett: Are the Bush Tax Cuts the Root of Our Fiscal Problem? ...

http://economix.blogs.nytimes.com/2011/07/26/are-the-bush-tax-cuts-the...

Slower-than-expected growth reduced revenue by another $3.5 trillion. Spending was $5.6 trillion higher than the C.B.O. anticipated for a total fiscal turnaround of $12 trillion. That is how a $6 trillion projected surplus turned into a cumulative deficit of $6 trillion.

Congressional Budget Office These figures are conservative insofar as revenue is concerned, because the higher interest payments required by the deficits created by the Bush tax cuts are allocated to spending. If one allocates the interest cost proportionally, the Bush tax cuts were responsible for increasing the debt by $3.2 trillion — 27 percent of the fiscal deterioration since 2001. These facts notwithstanding, it has become a Republican talking point that the Bush tax cuts did not, in fact, reduce revenue at all — something the Bush administration itself never asserted. Last year, Mitch McConnell of Kentucky, the Senate minority leader, said: “There’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue because of the vibrancy of these tax cuts in the economy.” On June 10, former Minnesota Gov. Tim Pawlenty said, “Keep in mind, whether it be the Bush tax cuts, the Reagan tax cuts or other tax cuts, they always produce an increase in revenue.” On July 10, Senator Jeff Sessions of Alabama said of the Bush tax cuts, “The revenue went up every single year after those tax cuts were put in.” And on July 15, Representative Trent Franks of Arizona said, “Even the much-maligned Bush tax cuts brought in an additional $100 billion a year to government coffers.” It is hard to know where these totally erroneous ideas come from. Federal revenue fell in 2001 from 2000, again in 2002 from 2001 and again in 2003 from 2002. Revenue did not get back to its 2000 level until 2005. More important, revenue as a share of G.D.P. was lower every year of the Bush presidency than it was in 2000.

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Bruce Bartlett: Are the Bush Tax Cuts the Root of Our Fiscal Problem? ...

http://economix.blogs.nytimes.com/2011/07/26/are-the-bush-tax-cuts-the...

Congressional Budget Office What will happen at the end of next year when the Bush tax cuts expire is already a matter of intense budget negotiations. Perhaps the whole point of the apparent Republican disinformation effort to deny that the Bush tax cuts reduced federal revenue is to make the reverse argument next year — allowing them to expire will not raise revenue. Facebook Twitter Google+ E-mail Share Print Bruce Bartlett, budget deficit, Bush tax cuts, Congressional Budget Office, Daily Economist, politics, tax cuts, Taxation Related Posts
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Bruce Bartlett: Are the Bush Tax Cuts the Root of Our Fiscal Problem? ...

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European Credit Crisis Indicators Italy
Italy 10-year bond Germany 10-year bond % yield 4.74% 1.32%

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1 month change –0.237 –0.025

Change –0.08 –0.006

12/11/2012 Source: Reuters

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Featured The Real Long-Term Budget Challenge10 Republican assertions that federal discretionary spending is out of control have contributed to unwarranted fears about the fiscal cliff, an economist writes. Capitalism and the Kids41 American society does a good job of capturing the benefits of well-reared children but has been less successful at spreading the costs, an economist writes. How Medicare Is Misrepresented60 Critics of Medicare appear to be speaking cryptically to avoid spelling out how they want to change popular provisions of the national health insurance program, an economist writes. The Real Fiscal Risks in the United States19

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The biggest danger of the looming “fiscal cliff” is that the government will do too little to address underlying problems in the economy, an economist writes. Poverty Should Have Risen102 That poverty did not increase during the recession demonstrates that government policies were providing too much help and taking away incentives to work, an economist writes. Featured Contributors

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Daily Economists Each day, Economix offers perspectives from expert contributors.
Bruce Bartlett
Former Treasury Official

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Nancy Folbre
University of Massachusetts-Amherst

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Simon Johnson
M.I.T./Peterson Institute

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Casey B. Mulligan
University of Chicago

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Uwe E. Reinhardt
Princeton University

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Bruce Bartlett: Are the Bush Tax Cuts the Root of Our Fiscal Problem? ...

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Laura D'Andrea Tyson
University of California, Berkeley

Bio | Posts About Economix Economics doesn't have to be complicated. It is the study of our lives — our jobs, our homes, our families and the little decisions we face every day. Here at Economix, journalists and economists analyze the news and use economics as a framework for thinking about the world. We welcome feedback, at economix@nytimes.com. Our Policy on Comments Tag List DAILY ECONOMIST 967 UNEMPLOYMENT 460 TAXES 338 EMPLOYMENT 324 HEALTH CARE 281 JOBS 256 CASEY B. MULLIGAN 205 SIMON JOHNSON 201 POLITICS 193 JOBS REPORT 192 NANCY FOLBRE 182 FEDERAL RESERVE 177 UWE E. REINHARDT 175 HOUSING 174 HEALTH INSURANCE 161 RECESSION 159 BUDGET DEFICIT 158 STIMULUS 153 WOMEN IN THE WORKFORCE 152 EDWARD L. GLAESER 146 U.S. HEALTH CARE COSTS 130 HIGHER EDUCATION 127 BANKS 120 DATA DECODING 117 FINANCIAL CRISIS 116 EDUCATION 115 CHINA 115 GREAT RECESSION 103 BRUCE BARTLETT 100 STOCKS 100

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Bruce Bartlett: Are the Bush Tax Cuts the Root of Our Fiscal Problem? ...

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