November 06, 2004

Budget Math


This is Just Through 2003. We've Got Five
More Years Past This of Sliding Off the Fiscal Cliff.

It has been pointed out to me that maybe my response (which included a great column by Paul Krugman) did not sufficiently put to rest the myth that "9/11 caused the federal deficit", so I thought I would elaborate here and update the sidebar link.

Krugman's opinions are based on facts compiled by the non-partisan Congressional Budget Office. He can't include all of the numbers and tables in an 800-word column (if he tried, it would be insanely boring), but he can summarize the information, source it, and explain its significance. That's what he does. If you don't believe it, go check his sources. It's not hard. The deficit is mainly due to the tax cuts. I have claimed that it is ignorant to believe that the tax cuts aren't the most significant reason we have deficits. See here for some help from the Center for Budget and Policy Priorities.

The math seems very simple to me. Tax income to the federal government has dropped by about $300 billion (and that's projected to be a much larger difference in the future thanks to Bush). The other categories (defense spending, $100 billion, discretionary including but not limited to homeland security, $100 billion) don't even add up to that. The economic slowdown (compare average rates of growth for the past 50 years to rate of growth the last four years) has resulted in only about a $60 billion difference in revenues, but that has been offset because the slowdown in growth has decreased interest payments on the deficit by about $60 billion.

You can get this information either from this PDF report by the Center for American Progress or from the Congressional Budget Office itself if you care to. The rest of the difference comes from Medicare and Medicaid, and that just got worse because of the giveaway to the pharmaceutical companies Kerry kept complaining about (but fiscal conservatives happily ignored).

The bottom line is that Bush's tax cuts have caused the majority of the deficit ($300 billion of the $400+ billion budget hole). They are the most significant reason by far that we have gone from a $250b surplus to the deficit we have today. Period.

Posted by Observer at November 6, 2004 07:43 AM
Comments

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Okiedoke. After reading that, *now* I feel informed. Numbers are needed to back up arguments about budgets.

So 9/11 caused a quarter of our deficit, the economic slowdown was a wash, and tax cuts caused 75%.

However, those tax cuts put money into consumers hands to spend, building the economy. Personal income grew from 8.3 trillion to 9.5 trillion in four years through a huge economic downturn. Corporate income grew even more amazingly, from 830 billion to 1,160 billion. You haven't convinced me that the tax cuts didn't have a lot to do with that. In fact, as I look at the numbers, it could easily be postulated that both personal income and corporate profits would have *declined* over that period without those tax cuts, which pretty much would have wiped out the projected surpluses anyway.

Hrmm. After looking over the numbers, the only real conclusion I can gather is the War on Terror is expensive, health care costs are rising enormously, and those tax cuts probably aren't as bad as suggested.

Posted by: Humbaba on November 6, 2004 10:45 AM

Krugman has talked about that as well in the past, and as always, his opinions are backed up by sound economic research and facts. You should think about giving the man a little bit of credit. He's been right on the money on this administration and the economy since the 2000 campaign.

Even outside of absolute facts, you can always check Bush's claims vs reality. He said his tax cuts would create something on the order of 3 million jobs (not entirely sure of that number) by 2004, but instead, the economy lost a million jobs, and that omits the aftermath of 9/11. They like to claim that they grew 1.6 million jobs in the last 13 months or something, but they omit the 2.6 million jobs they lost before that (and they omit that their job creation is barely enough to keep up with population growth in the last 13 months and far, far worse than Clinton's).

If you want to claim that Bush's tax cuts have grown the economy significantly, prove it. Look it up. Inform me. Here's a Krugman column I quoted a while back that gives you an idea of what you can expect to find. Be sure to look at a little bit of the history of how taxation levels have corresponded (not) to economic growth. Here is a summary of what you'll find.

I also talked about taxation levels as a part of SCM #13. Another relevant post was here in which I compared Bush's unrela economic forecasts with Feynman's Cargo Cult Science.

Posted by: Observer on November 6, 2004 02:57 PM