SANITIZING THE GRIM NEWS (tax cuts are main cause of deficits)

[papau]

http://www.cbpp.org/

SANITIZING THE GRIM NEWS:
The Administration's Efforts to Make Harmful Deficits Appear Benign
By Richard Kogan and Robert Greenstein
<snip>… a number of policymakers on Capitol Hill this week began describing the deficits as “spending driven” and arguing that tax cuts had nothing to do with the deterioration of the budget outlook. This analysis seeks to draw a more balanced picture of the causes and implications of current and future deficits.

Do Deficits Shrink Over Time? <snip>At 4.2 percent of GDP, the 2003 deficit is quite high. During Franklin Roosevelt’s first two terms — from 1933 through 1940, during the Great Depression, when unemployment ranged from 14 percent to 25 percent — deficits averaged 3.5 percent of GDP. More important, the deficit outside Social Security will equal 5.7 percent of GDP this year, the second highest such level in the past 57 years. (The highest level, 6.0 percent of GDP, occurred in 1983.) Looking at the deficit outside Social Security is useful to gain a sense of the long-term problems the budget faces, because the Social Security surpluses are a temporary phenomenon and will disappear as the baby boomers retire. In addition, the Administration’s deficit projection for fiscal year 2008 — $226 billion — is not credible. It …omits most of the cost of addressing the swelling Alternative Minimum Tax….would add $50 billion to $60 billion in cost in 2008…. lowball the cost of defense spending in coming years, leaving out of the budget projection for 2008 an estimated $40 billion to $45 billion needed to fund the Administration’s Future Year Defense Plan.. inconsistent both with recent history — defense spending grew $43 billion in 2002 and another $76 billion in 2003 — and with the Administration’s future-year defense plan …assumes there will be no hurricanes, floods, or other natural disasters requiring federal relief in 2008 .. Historically…$8 billion a year ….budget projection for 2008 assumes levels of expenditure for domestic discretionary programs that are $15 billion below what is needed to maintain current real per-person appropriation levels for these programs, which include education, biomedical research, and infrastructure ….also do not include the cost of any extension of the “bonus depreciation” business tax break slated to expire at the end of 2004 … another $50 billion or more … no funding for the occupation and reconstruction of Iraq and Afghanistan after September 30, 2003 (While those efforts may be complete before 2008, their costs in the intervening years will result in higher interest payments on the debt in 2008).
…An honest assessment of the relative role that tax cuts and program increases have played in contributing to the deterioration of the budget over the past 2½ years requires estimating the cost of legislation enacted since the start of 2001. … deficits while the economy is weak are not a problem. It is the persistence of large deficits after the economy recovers that represents the budgetary threat. OMB’s own figures in the Mid-Session Review show that tax cuts account for 54 percent of the cost over the 2002-2008 period of all legislation that has been enacted since the Administration took office..(or) is now proposing

… OMB’s figures stop in 2008. All independent analyses show deficits growing after 2008…. several tax cuts enacted in 2001 which are slated to expand after 2008 are one of the reasons that deficits will widen in those years. ..We estimate that by 2011, tax cuts will account for 57 percent of the budget deterioration caused by legislation, relative to the budget projections made in 2001

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