NCPA - National Center for Policy Analysis


July 14, 2010

President Obama and congressional Democrats are blaming their trillion-dollar budget deficits on the Bush tax cuts of 2001 and 2003.  Letting these tax cuts expire is their answer.   Yet the data flatly contradict this "tax cuts caused the deficits" narrative.  Consider one of the most persistent myths, says Brian Riedl, a research fellow at the Heritage Foundation: The Bush tax cuts wiped out last decade's budget surplus. 

Sen. John Kerry (D-Mass.), has long blamed the tax cuts for having "taken a $5.6 trillion surplus and turned it into deficits as far as the eye can see," however: 

  • That $5.6 trillion surplus never existed; instead, it was a projection by the Congressional Budget Office (CBO) in January 2001 to cover the next decade.
  • It assumed that late-1990s economic growth and the stock market bubble (which had already peaked) would continue forever and generate record-high tax revenues.
  • It assumed no recessions, no terrorist attacks, no wars, no natural disasters and that all discretionary spending would fall to 1930s levels.  

The projected $5.6 trillion surplus between 2002 and 2011 will more likely be a $6.1 trillion deficit through September 2011.  So what was the cause of this dizzying, $11.7 trillion swing?  According to Riedl: 

  • Analysis of the CBO's 28 subsequent budget baseline updates since January 2001 reveal that the much-maligned Bush tax cuts, at $1.7 trillion, caused just 14 percent of the swing from projected surpluses to actual deficits (and that is according to a "static" analysis, excluding any revenues recovered from faster economic growth induced by the cuts).
  • The bulk of the swing resulted from economic and technical revisions (33 percent), other new spending (32 percent), net interest on the debt (12 percent), the 2009 stimulus (6 percent) and other tax cuts (3 percent).
  • Specifically, the tax cuts for those earning more than $250,000 are responsible for just 4 percent of the swing.  

If there were no Bush tax cuts, runaway spending and economic factors would have guaranteed more than $4 trillion in deficits over the decade and kept the budget in deficit every year except 2007, says Riedl. 

Source: Brian Riedl, "The Bush Tax Cuts and the Deficit Myth," Wall Street Journal, July 13, 2010. 

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