Tuesday, July 13, 2010

Did the Bush Tax Cuts Cause Today's Deficits?

My former colleague at the Heritage Foundation, Brian Riedl, has a column in the Wall Street Journal today which discusses the degree to which President Bush's policies can be blamed for current deficits. I think Brian is too easy on Bush's terrible record as a big spender, but he is 100 percent correct in his big-picture analysis. Over the long run, revenues are stable. We face a future filled with red ink solely because of a rising burden of government spending.

...rapidly increasing spending will cause 100% of rising long-term deficits. Over the past 50 years, tax revenues have deviated little from their 18% of gross domestic product (GDP) average. Despite a temporary recession-induced dip, CBO projects that even if all Bush tax cuts are extended and the AMT is patched, tax revenues will rebound to 18.2% of GDP by 2020—slightly above the historical average. They will continue growing afterwards. Spending—which has averaged 20.3% of GDP over the past 50 years—won't remain as stable. Using the budget baseline deficit of $13 trillion for the next decade as described above, CBO figures show spending surging to a peacetime record 26.5% of GDP by 2020 and also rising steeply thereafter. Putting this together, the budget deficit, historically 2.3% of GDP, is projected to leap to 8.3% of GDP by 2020 under current policies. This will result from Washington taxing at 0.2% of GDP above the historical average but spending 6.2% above its historical average.

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