Exploding the myth that Bush tax cuts caused the deficit
One of the biggest errors I see in many economic analyses can be summed up in one word - static. That is, a resulting quantity is assumed not to change when a related variable is. For instance, Ronald Reagan significantly cut taxes across the board to the point that Democrats were predicting fiscal Armageddon for the federal government. But do you know what happened? Revenues into the treasury didn't decrease at all, even though the tax rates plummeted. Similarly, when Bush cut taxes, again across the board early in the decade, revenues to the federal government did not go down! The tax on capital gains went down but the revenue from the tax did not. Similarly, despite liberals crying that too many tax cuts went to the wealthy, the fact is that the top 1% now pay more federal taxes than the bottom 95%:
Yet liberals continue to count the Bush tax cuts as some type of 'cost' and attribute the deficit to that cost, which is imaginary. The tax cuts spurred investment and activity that made up for the cut. In the mind of the liberal, every penny you have is the governments, and anything that is not confiscated by the government they see as a cost. That's the thinking of a statist. Here's a graphic that I've seen thrown out by liberals many times:
Funny how the Bush tax cuts that expire this year are accounted into the deficit in 2011, 2012, 2013, etc, no? Also, note that spending increases are conspicuously missing. So is the interest we pay on our growing debt. Matter of fact is that the FY 2007 federal budget - the last one put together by Republicans - was $2.7 trillion. Since Pelosi and Reid took over the federal budget is at $3.8 trillion. The deficit is entirely comprised of new Democrat spending since 2007. It's liberal tripe, and the Wall Street Journal puts together a fine piece to argue against it on the basis of fact, not feeling (via memeorandum): The Bush Tax Cuts and the Deficit Myth
• 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).
The bulk of the swing resulted from economic and technical revisions (33%), other new spending (32%), net interest on the debt (12%), the 2009 stimulus (6%) and other tax cuts (3%). Specifically, the tax cuts for those earning more than $250,000 are responsible for just 4% of the swing. If there were no Bush tax cuts, runaway spending and economic factors would have guaranteed more than $4 trillion in deficits over the decade and kept the budget in deficit every year except 2007.
