A decade has passed since President George W. Bush and a Republican-controlled Congress enacted the largest tax cuts in decades. What have they achieved? The national debt is increasing at an alarming rate, the economy continues to sputter and the gap between the working class and wealthy continues to grow.
This doesn’t mean that lowering taxes isn’t sometimes a good idea. But, it clearly shows that the cost of tax reductions must be more carefully considered.
Before he was elected in 2000, George W. Bush argued that a huge budget surplus — $230 billion at that time — showed that the federal government was collecting too much in taxes. After he won the presidency, the Republican-led Congress reduced taxes in 2001 and 2003. As a result, federal tax revenue is at its lowest level as a share of the economy since the 1950s.
Those cuts were set to expire at the end of last year, but were extended for two years through a bipartisan compromise that also extended unemployment benefits.
In a recent series on the federal deficit, The Washington Post examined how the federal deficit went from a predicted $2 trillion surplus to a $10 trillion deficit in just a decade.
“The biggest culprit, by far, has been an erosion of tax revenue triggered largely by two recessions and multiple rounds of tax cuts,” the paper wrote in an April 30 story. “Together, the economy and the tax bills enacted under former president George W. Bush, and to a lesser extent by President Barack Obama, wiped out $6.3 trillion in anticipated revenue. That’s nearly half of the $12.7 trillion swing from projected surpluses to real debt. Federal tax collections now stand at their lowest level as a percentage of the economy in 60 years.”
Also contributing to the mounting debt were the wars in Iraq and Afghanistan, which were funded outside usual budget constraints, the new Medicare prescription drug benefit and the Troubled Asset Relief Program, also known as the bank bailout. These items accounted for 12 percent of the shift from surplus to deficit, according to the Post, although it pointed out that, after repayments from financial institutions, TARP may cost nothing.
The 2009 stimulus package has added about $719 billion to the deficit, or about 6 percent, the Post reported.
Another argument conservatives make defending tax cuts is that the extra capital leads to job creation. There is strong evidence to the contrary. Robert Reich, labor secretary under President Clinton, writes that Republican claims that “restoring the Clinton tax rates for the rich would hurt the economy — because it would reduce the ‘incentives’ of the rich (including the richest small-business owners) to create jobs — is ludicrous.” During the Clinton years, the economy roared, Mr. Reich notes, and 22 million jobs were created. In the eight years of the Bush administration, even with two tax cuts, the economy created just 8 million jobs.
The consequences of the 10-year-old tax cuts show that tax cuts are far from the panacea that conservatives often portray them to be. This lesson must not be forgotten as lawmakers in Washington and the State House try to again sell tax cuts as the key to economic prosperity.