The Mother of all Budget Deficits

Budget, Bush Administration, Congress

Ron Brownstein writes at the Los Angeles Times that the biggest cause of our whopping budget deficit is not congressional pork but Bush’s tax cuts.

Maybe the most valuable earmark reform Congress could consider would be to offer more pork-barrel projects to legislators who vote against unaffordable tax cuts.

OK, that’s slightly facetious. Excessive earmarks are a real problem. But they don’t pose nearly as great a threat to the federal government’s finances as the massive tax cuts President Bush and Congress continue to enact. …

… As a strategy for reducing Washington’s huge budget deficit, fighting earmarks while promoting tax cuts is incoherent. It ignores the biggest near-term threat to the budget to concentrate on a second-tier problem. It’s like a bank security guard arresting a pickpocket in the lobby while a gang of thieves loots the vault below.

Actually, that might understate the problem. The emphasis on earmarks, unless attached to a broader program, could set back action against the real threats to the federal budget: in the short term, the cost of Bush’s tax cuts; in the long term, the rise in entitlement spending for the elderly.

Not being a whiz on any topic involving numbers and money, I looked up earmarks. According to a document on the Senate Budget Committee web site,

An earmark refers to funds set aside within an account for a specified purpose. Sometimes earmark refers to any congressional set-aside for a specified program, project, activity, institution, or location. At other times, the term more narrowly refers to set-asides for individual projects, locations, or institutions. For example, an appropriations bill including $100 million for a construction account may set aside $10 million of the construction funds for a particular project. In addition to setting aside funds, the earmark might also provide spending floors by stating that not less than $10 million must be used for the specified project.

Back to Ron Brownstein:

The focus on earmarks “throws the public off,” says Robert Bixby, executive director of the Concord Coalition, a nonpartisan fiscal watchdog group. “It distorts the nature of the problem. It is hard to get people focused on the big policy choices when they hear so much about these earmarks that they think that is the problem.”

Individual legislators slip earmarks into budgets to pay back their campaign contributors and to impress voters back home through projects like the famous Alaskan “bridge to nowhere.” A group called Citizens Against Government Waste calculates that in 1994, the last year Democrats controlled Congress, Congress approved $7.8 billion in earmarks. Under Republicans that number has risen. This year’s earmarks totaled $29 billion.

Not all earmarks are wasteful, Brownstein writes, but even if they were, “earmarks represent little more than a rounding error compared to Bush’s tax cuts or the long-term cost of entitlements.”

The Tax Policy Center, Brownstein says,

… calculated that extending all of Bush’s first-term tax cuts and adjusting the alternative minimum tax to blunt its impact on the middle class would cost about $300 billion a year over the next decade.

That means the cost of Bush’s tax agenda exceeds the cost of all earmarks, even under the most expansive definition, by about 10 to 1. The cost of Bush’s tax agenda in one year alone will exceed the total spent on earmarks, by any definition, in the past decade.

Yet Republican politicians who yell and scream about pork cheerfully support the irresponsible tax cuts. That may be the real purpose of the pork — it gives them something beside tax cuts to blame for the deficit. Crusading for earmark reform, Brownstein says, “allows politicians to suggest they are seriously confronting the deficit while supporting unaffordable tax cuts that deepen the deficit.”

Over at BOP News, Hale Stewart blogs mightily against the insanity of the Bush tax cuts. See, for example, “Republicans Give Millionaires $42,000 Tax Break” — “People who make $1 million or more in annual income get a $41,977 tax break, while people who make $50,000 — 74,999 get a whopping $110 break and $403. Wow. Color me impressed.”

Republicans still say that tax cuts, especially tax cuts for the well-to-do investor class, are growing the economy out of the deficit. To this Hale says,

First, the Republican completely ignore the 2001 tax cuts. They simply forget them. Why? Because nothing really important happened after them – the economy didn’t turn-around in a big way. Republicans also forget that interest rates were historically low during this expansion. Real interest rates – interest rates minus inflation – were negative for at least a year: lower interest rates to those levels and everyone borrows money to spend. In fact, the relationship between interest rates and GDP growth was long established as economic fact long-before the “tax cuts pay for themselves” canard became part of the Republican lexicon. The relationship is simple: lower rates, grow the economy; increase rates, slow the economy. It’s that simple.

So, the Republicans lie to get tax cuts for their big contributors. Wow – there’s something new.

In “They’re NOT Tax Cuts; They’re Tax DEFERRALS, Hale writes,

The Republican Congress recently passed an extension of Bush’s tax cut package. Here’s something the Republicans forget to tell everybody. These aren’t tax cuts. Instead they are tax deferments. Eventually, someone will have to pay for these cuts. As the Center on Budget and Policy Priorities demonstrates, lower income taxpayers will suffer the most.

First, here is a brief summary of the Republican Congress’ “fiscal responsibility.” First, they have cut taxes twice – in 2001 and 2003. The Republicans want everyone to forget about 2001 because nothing happened after those tax cuts – job growth didn’t increase, GDP growth was lackluster and tax revenues decreased for two straight years (indicating tax cuts don’t pay for themselves). In fact, tax revenue at the end of 2005 was still 6.7% below the level of tax revenue from individuals in 2001.

At the same time, the Republican’s increased discretionary spending from $649 billion to $967 billion. This created a gap between government revenues and expenditures which was filled by a 43% in government debt outstanding from $5.8 trillion to $8.3 trillion. In other words, the “fiscally responsible” party whipped out the national credit card to pay for their tax cuts, passing the cost onto the next generation (clearly violating their personal responsibility motto).

The links in Hale’s post lead to some really interesting tables. See also “The Ultimate Burden of the Tax Cuts” from the Center on Budget and Policy Priorities.

Related links: “Bankrupted by Voodoo Economics” by Jonathan Chait; “Don’t Feed the Beast” by Sebastian Mallaby and Mahablog, “The Beast That Won’t Starve.”

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  1. Donna  •  May 14, 2006 @11:18 am

    Like their buddies who ran Enron, the Bush cronies in government are spinning lies as fast as possible to steal as much as possible for the top tier before their fraudulent ‘accounting’ falls under its own weight and America wakes up to find itself in bankruptcy.