Wednesday, July 27, 2011
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.