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Wednesday, July 27, 2011

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

New York Times, Are the Bush Tax Cuts the Root of Our Fiscal Problem?, by Bruce Bartlett:

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.

In a previous post, I noted that federal taxes as a share of GDP were at their lowest level in generations. The CBO expects revenue to be just 14.8% of GDP this year; the last year it was lower was 1950. ... [R]evenue has been below 15% of GDP since 2009, and the last time we had three years in a row when revenue as a share of GDP was that low was 1941 to 1943.

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 GDP growth peaked at just 3.6% in 2004 before fading rapidly. Even before the crisis hit, real GDP was growing less than 2% a year.

[This] is how a $6 trillion projected surplus turned into a cumulative deficit of $6 trillion:

[I]t has become a Republican talking point that the Bush tax cuts did not, in fact, reduce revenue at all. ... 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 GDP was lower every year of the Bush presidency than it was in 2000.
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Comments

An alternative hypothesis is that Federal expenditures far exceed the Federal revenues, so a solution to the problem would be to simply STOP SPENDING MONEY WE DO NOT HAVE.

Posted by: Dr. K | Jul 27, 2011 1:18:04 PM

I just read the title of the article and its author. Let me guess if Bush gets blamed. If reducing taxes is so bad, then why did the Democrats and Obama extend the Bush tax rates...so they could still blame Bush?

Posted by: Woody | Jul 27, 2011 3:18:31 PM

My humble apologies, but anyone who contributes more to America than they take away should recognize that Bartlett is a humbug. Bartlett's constant hectoring in favor of higher taxation seems to be a weak effort to emulate JFK's wise admonition that citizens should ask what they can do for our Nation, rather than the other way around. To paraphrase another politician, Bartlett is no JFK. JFK served his nation with valor on PT-109 in the Pacific War. Bartlett, in contrast, served the cause of economic liberty earlier in his career, but now, with his incessant calls for more taxes, proves himself a Quisling.

Bah.

Posted by: Jake | Jul 27, 2011 9:59:09 PM

Yes, a "let them eat cake" attitude has worked wonders throughout history.

The irony is that the Tea Party hobbits, as McCain calls them, may be accelerating the advent of the socialist state rather than stopping it. It's going to be a dismal future for everyone. Good job, guys.

Posted by: Anonymous | Jul 28, 2011 9:17:04 AM

I think the myth in the US is that rich people make a contribution to society. Unforntunately in many cases they do not. I watched my millionarie grandmother in the 1960s-70s and 80s collect dividends and interest- no jobs were created. I watched my wife's millionaire cousin also collect dividends and interest- no jobs created. I watched my millionaire estate planning clients collect dividends and interest checks- no jobs created. I watched them join the tea party and anti-tax movement of the R party to keep the myth going- and no jobs were created. I burned my R party ticket and it is sailing in the Atlantic ocean where the tea and R party members belong.

Posted by: Nick | Jul 28, 2011 12:49:19 PM

Nick is absolutely correct. We have now transformed into a "rentier" economy. The rich collect dividends and interest and do not create jobs. Just look at Romney and Bain Capital. He made his millions by shedding jobs. The Bush tax cuts, which have blown a big hole in our national finances, have shown that they neither create new revenue nor create jobs. In fact, the job creation rate of the last few years under Bush has been very low.

I think it ties to the transformation in the 1970s and accelerated in the 1980s when we shed factories and started investing money in Wall Street. Factories are not being built here. Instead, we focus on Wall Street and neglect Main Street.

By the by, Tea Party and Republicans loudly inveigh against the federal government's outstanding debts while overlooking the fact that Wall Street is at risk for $185 trillion in credit default swaps. If anything goes wrong in Wall Street (like a national default), and the house of cards comes falling down, we are in a world of hurt.

Since the rich cannot and will not invest in our economy, the money should be put to far more productive use like education and infrastructure.

By the by, since many Republicans and Tea Party folks seem to love the United States pre-1920s and 1930s, it might behoove them to notice that we have "evolved" since then and there are no more jobs in factories anymore. To get the economy of, say, 1920, would involve a 30 percent plus unemployment rate.

That is the recipe for a revolution. The Teapublicans might find themselves socialized a lot more than anything the allegedly socialist moves our current President has done.

Posted by: Anonymous | Jul 28, 2011 3:52:16 PM