In past posts, I’ve emphasized that tax cuts don’t really generate greater revenues for the government except under the most unusual circumstances. Tax cuts do exactly that, they cut the taxes available to the government. And that is one of the three big reasons why the U.S. government is running large deficits today and has a rising public debt. The three big reasons are Bush-era tax cuts, wars, and an economic recession which cuts revenue. It wasn’t the stimulus spending or the bailouts. From Chad Stone at the CBPP:
As we’ve noted, my colleagues Kathy Ruffing and Jim Horney have updated CBPP’sanalysis showing that the economic downturn, President Bush’s tax cuts, and the wars in Afghanistan and Iraq explain virtually the entire federal budget deficit over the next ten years. So, what about the public debt, which is basically the sum of annual budget deficits, minus annual surpluses, over the nation’s entire history?
The complementary chart, below, shows that the Bush-era tax cuts and the Iraq and Afghanistan wars — including their associated interest costs — account for almost half of the projected public debt in 2019 (measured as a share of the economy) if we continue current policies.
Altogether, the economic downturn, the measures enacted to combat it (including the 2009 Recovery Act), and the financial rescue legislation play a smaller role in the projected debt increase over the next decade. Public debt due to all other factors fell from over 30 percent of GDP in 2001 to 20 percent of GDP in 2019.
If we just let the Bush-era tax cuts expire on schedule and nothing else, we can get the public debt stabilized relative to GDP. If we also end these multiple wars (Iraq, Afghanistan, Libya, where else?), things get much better. We could easily afford to stimulate the economy back to full-employment. We could pay for everybody’s healthcare bills into old age. Just sayin’.