President Obama and congressional Democrats continue to blame the trillion-dollar budget deficits on the 2001 and 2003 tax cuts. For the Left, these tax cuts are the height of Republican fiscal irresponsibility, which ought to rob the GOP of any right to criticize runaway Democratic spending.
With the tax cuts set to expire after December 31, Congress has not yet scheduled a vote to extend any of them. It is becoming increasingly likely that Congress will let all of them expire, not just those for “the rich.” This means halving the child credit, reinstating the marriage penalty, raising the bottom tax rate by one-third, and substantially hiking tax rates on investors, small businesses, and the middle class. And don’t forget a 55 percent estate tax rate.
My op-ed in today’s Wall Street Journal shows that — despite intense blame — the 2001 and 2003 tax cuts play a relatively small role in past and future budget deficits:
● They are responsible for just 14 percent of the swing from projected budget surpluses to actual deficits between 2002 and 2011 (and the tax cuts for those earning more than $250,000 account for just 4 percent of the swing).
● The president’s claim that future budget deficits are “the result of not paying for two wars, two tax cuts, and an expensive prescription drug program” is based on a methodology that fails basic statistics — and is still wrong even by that methodology.
● Take the default, current-policy budget baseline projection for the next decade. Even if all the tax cuts are extended (and the AMT is patched), revenues are still set to surpass the historical average of 18 percent of GDP by the end of the decade. The reason the 2020 deficit will be 6 percent of GDP above its historical average, is because federal spending will be 6 percent of GDP above its historical average. It’s the spending, stupid.
The op-ed is here. The more detailed report (with several charts) is here.
– Brian Riedl is Grover M. Hermann fellow in federal budgetary affairs at the Heritage Foundation.