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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Mike Konczal on the Bush Legacy



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Mike Konczal has an intriguing blog post riffing on Arjun Jayadev’s post on “the perverse Bush legacy.” Basically, there were two big revenue dips between 2001 and 2010, associated with the 2001 and 2003 tax cuts and, of course, the economic downturns that began and that closed the decade. I worry that Arjun — an exceptionally smart guy I’ve had the pleasure of meeting (I intend to write about his “guard labor” piece, which merits a Veblenian interpretation) — has a somewhat blinkered perspective. He writes the following:

The factors behind the two collapses in the tax take as a percentage of GDP? The George W Bush tax cuts and the financial crisis under Bush (not necessarily caused, but aided and abetted by the administration). The latter of course, is the main reason for the increase in debt, not the ‘profligate spending’ of the current administration. Note that US is at the lowest tax take in nearly 40 years, and the projected increase in revenues from 2010 onwards comes about primarily because of an end to the tax cuts.

And he links to James Kwak, who writes:

In short, the problem is that the economy collapsed. Blaming our increasing debt problems on “the Obama administration’s planned budgets,” when they are responsible for one-sixth (or one-fifth, if you read footnotes) of part of the problem (the part not due to a shrinking denominator), is deeply misleading. It also leads to the wrong conclusion: cut spending.

Keith Hennessey offers a useful corrective. I’m struck by how we talk about the impact of the most recent downturn on federal revenues, yet we don’t often discuss how revenue projections from 2000 were also overstated, reflecting capital gains revenues from the tech bubble. 

It is true that 10 years ago we had a budget surplus of more than $200 billion, and that CBO projected surpluses “stretching out toward the horizon.”  When CBO built its budget baseline for 2001, they had not yet accounted for the bursting of the late 90’s tech stock market bubble and the effect it would have on federal revenues.  Like families, businesses, and investors, CBO made a mistake:  they projected future revenue growth that was never going to occur.  Critics of the Bush Administration hinge their comparative argument on this single mistaken budget projection which in hindsight analysts from both parties acknowledge was wildly inaccurate.

To be sure, this doesn’t mean that the Bush tax cuts were a good idea. Indeed, I think they were very poorly designed and larger than was appropriate given that the Bush administration badly underestimated the fiscal challenges temporarily masked by the tech bubble. But I wonder if Mike Konczal’s concluding remarks make sense:

If people ask when Obama and others should stop blaming the former President Bush for our current economic crisis, I will now say that we can stop blaming him when our budgeted revenue is out of the “W.”

There’s a small problem here, which is that the Obama administration intends to extend most of the Bush tax cuts. And I’m not sure if budgeted revenue is directly connected to the sources and the persistence of the current economic crisis. My sense had been that Mike and many others believe that revenue recovery is not a priority until after the economic crisis has been resolved. That said, I would be very eager to see revenue increases and sharp spending reductions designed to bring the budget into balance over the business cycle. 



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