Bush likes to refer to himself as a “War President.” That he is, but he is also the “Deficit President.”
The previous post talks about the tremendous federal deficit that we have accumulated in the five years that Bush has been president and how he and Congress have no real plan to reduce it. Sure, Bush recently bragged about a reduction in the size of the deficit and claimed that it was proof his economic “stimulus” package that was passed by Congress in 2001 was working. Krugman commented on the new numbers in this column from July 11th.
The usual suspects on the right are already declaring victory over the deficit, and proclaiming vindication for the Laffer Curve - the claim that tax cuts pay for themselves, because they have such a miraculous effect on the economy that revenue actually goes up.
But the fact is that revenue remains far lower than anyone would have predicted before the tax cuts began. In January 2001 the budget office forecast revenues of $2.57 trillion in fiscal 2005. Even with the recent increase in receipts, the actual number will be at least $400 billion less.
(Snip)
It turns out that all of the upside surprise in tax receipts is coming from two sources. One is tax payments from corporations, up both because last year corporate profits grew much more rapidly than the rest of the economy and because the effective tax rate on corporations went up when a temporary tax break, introduced in 2002, expired. Both are one-time events.
(Snip)
In other words, we’re still deep in the fiscal quagmire, with federal revenues far below what’s needed to pay for federal programs. And we won’t get out of that quagmire until a future president admits that the Bush tax cuts were a mistake, and must be reversed.
Hmmm… that sounds familiar. Didn’t we have a Republican president many years ago that tried to spur the economy with tax cuts? How’d that turn out? Not good, but at least Reagan recognized that the rapidly increasing deficit would lead to future economic problems, so he backtracked and raised taxes. His successor, President “Read My Lips… No new taxes!” Bush also had to raise taxes.
Then along came Clinton, and he proved that you could increase taxes, turn the deficit into surplus, and have a thriving economy. Ahh… those were the days. All we had to worry about was how to define a sexual relationship and what the meaning of “is” is.
That brings me to a lengthy Atlantic Unbound interview (subscription required, but if you email me, I’d be happy to email the article to you from their website.) with John Harris, “author of The Survivor, on why Clinton and his legacy will be debated for decades to come.” Here’s an excerpt of Harris’s response to a question about Clinton’s deficit reduction plan:
…I’m wondering if Clinton’s action to reduce the deficit really did spur the economy, or if he was the beneficiary of lucky timing.
That’s an argument that you can never fully resolve because it rests on an imponderable. You can’t go back and try it the other way. That 1993 deficit-reduction package was passed with all Democratic votes… The predictions on the Republican side were that this would cause an economic catastrophe, that it would plunge the economy into recession-that’s what Newt Gingrich said, that’s what Dick Armey said, and that part’s not an imponderable. Those predictions were ostentatiously wrong. Certainly if the economy had not improved, Clinton would have borne the blame for that… To my mind, it is almost like the debate that echoes from the Reagan years. Democrats always say, “If we hadn’t had a military build-up, the Soviet Union would still have collapsed.” That might be true, but most sensible people would not want to go back and try it another way, given that the end result was a good one. I really do think it’s equivalent, and I think it’s churlish of conservatives not to accord Clinton some credit for the economy of the 1990s, since they almost certainly would blame him if it had gone the other way.
Bush is in the middle of an expensive war that is adding hundreds of billions of dollars to the deficit, and he won’t ask his ultra-rich donors to sacrifice a little of their “hard earned” billions to pay for his folly.
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