Tax Cuts, Not Spending Increases, the Main Cause of the Swing from Surpluses to Deficits
By proposing hefty new tax cuts while cutting domestic discretionary programs and establishing new budget enforcement rules that apply to entitlements but not to tax cuts, the budget ignores the principal reason for the unprecedented swing in the past three years from large surpluses to startling deficits — the sharp decline in tax revenues.
* In 2004, revenues will total 15.7 percent of GDP according to the Administration and 15.8 percent according to CBO, the lowest level since 1950. * Yet, spending in 2004, at 20.2 percent of GDP according to the Administration (and 20.0 percent according to CBO), will not be unusually high; it will be lower than in any year from 1980 through 1996 and slightly below its average level of 20.5 percent of GDP over the past 40 years. * [u]CBO and OMB data show, in fact, that declines in revenues account for about three-fourths of the fiscal deterioration of the past few years.
While revenues will rise some as the economy recovers, they will average only about 17.1 percent of GDP over the coming decade if the recent tax cuts are extended and AMT relief is continued. (The Administration’s budget shows a somewhat higher figure, but that figure is not meaningful, since it assumes the AMT will explode into the middle class and collect tens of billions of dollars of tax revenue each year.) The 17.1 percent-of-GDP level is below the average revenue levels for every decade in the second half of the 20th century. It is a dangerously low level for a period in which the baby boomers will begin to retire and deficits will begin to rise toward economically unsustainable levels.
“Declines in Revenue” means the tax cuts. It’s bad, mmmkay?