We’ve said it before, but it bears repeating…
The following comes from a new report by our friends at Think Progress:
Ten years ago today, the first round of Bush tax cuts became law. But what if they hadn’t? What would our fiscal situation look like if history had been different in just one respect: if we’d never implemented President George W. Bush’s eponymous tax policies? The short answer is that the debate over federal debt levels would be entirely different. In that alternate world, total debt as a share of GDP would be under 50 percent this year—instead of pushing 70 percent—and it would be expected to stay under 60 percent for the rest of the decade. (see chart) That’s well below the levels causing such great consternation in Washington.
Bear in mind that President Bush inherited perhaps the strongest federal balance sheet in postwar history. There were record-high surpluses, debt was at around 30 percent of GDP and falling, and the Congressional Budget Office projected that the federal government would be debt free by 2009. The country was in great fiscal shape to deal with any crises or emergencies coming down the road, and it was even ready to deal with the coming retirement of the baby boom generation.
But rather than follow President Bill Clinton’s successful lead, President Bush handed out gigantic tax cuts, with people at the top of the income ladder getting the biggest breaks. Those “supply-side” tax cuts were a complete failure as economic policy, and now, instead of being debt free and well prepared to care for an aging population, our debt-to-GDP ratio is almost 70 percent. If those tax cuts are extended—instead of being allowed to expire on schedule at the end of 2012—it will approach 100 percent by 2021.
Of course, other factors contributed to the federal budget’s deterioration: the terrorist attacks of September 11, 2001; the subsequent recession; the wars in Iraq and Afghanistan; President Bush’s domestic spending programs; and the onset of the Great Recession at the end of 2007, which led to massively reduced tax collections as incomes plummeted.
But even with all of that, when one adds back the foregone revenue from the Bush tax cuts to the actual revenue collections over the past 10 years, the debt picture suddenly becomes markedly better. That additional revenue would have meant lower deficits in each year and therefore lower overall debt. And lower debt means lower interest payments on that debt, further reducing deficits. In the “no Bush tax cuts” alternate universe, our debt-to-GDP ratio would be less than 50 percent this year even after all the other fiscal shocks of the past 10 years.
Similarly, in a future without the Bush tax cuts, the national debt would be under control. In the Congressional Budget Office’s official baseline, the debt-to-GDP ratio rises by only 3 percentage points from 2012 to 2021 despite the retirement of the baby boomers. In large part, that’s because the CBO baseline assumes the full expiration of the tax cuts. And if instead of starting from almost 75 percent of GDP, we were starting from just 55 percent—which is where we’d be in 2012 if the Bush tax cuts had never happened—debt would stay below 60 percent for the remainder of the decade. There is no magic level above which the debt level becomes dangerous. But few, if any, consider 60 percent of GDP in debt as a significant risk to the country…
And, as I haven’t said it in a while, I’d like to note that I’m still pissed at Obama for not fighting harder to kill these irresponsible tax gave-aways to the rich when he had a chance.