The Wall Street Journal, irked by President Obama’s unseemly insistence on higher taxes as part of deficit reduction negotiations yesterday, has published an important editorial today. It’s packed with nutritious information that should be spread far and wide, to kill off the lie that President Bush’s tax cuts caused the deficit to explode.
This is a major component of Democrat Party rhetoric. Aside from naked class warfare, it’s the stated reason for their absolute intransigence on tax increases. They refuse to even discuss fiscal restraint until they receive assurances they can raise taxes on the Evil Rich, because supposedly the Bush reduction in the top marginal rate caused government revenue to fall, and exploded the deficit.
This is not true, and the Journal has the numbers to prove it. The Bush tax structure pulled in 17.5% of GDP as federal revenue in 2008, but then Obamanomics kicked in. Only 14.9% of GDP was taken by the federal government in 2009 and 2010, and the Congressional Budget Office projects comparable receipts for 2011, although the Journal thinks this estimate is a bit low.
“What about the liberal claim, repeated constantly, that the Bush tax cuts of 2001 and 2003 caused today’s deficits?” ask the editors. “CBO has shown this to be demonstrably false. On May 12, the budget arm of Congress examined the changes in its baseline projections from 2001 through 2011. In 2001, it had predicted a surplus in 2011 of $889 billion. Instead, it expects a deficit of $1.4 trillion.”
So where did our titanic federal deficit come from? “CBO’s data show that by far the biggest change in its deficit forecast is the spending bonanza, with outlays in 2011 that are $1.135 trillion higher than the budget office estimated a decade ago. One-third of that is higher interest payments on the national debt, notwithstanding record low interest rates. But $523 billion is due to domestic spending increases, including defense, education, Medicaid and the Obama stimulus. Mr. Bush’s Medicare drug plan accounts for $53 billion of this unanticipated spending in 2011.”
There is one tax cut that actually did reduce federal revenue significantly: Obama’s vaunted payroll tax cut, which will cut $196 billion from Uncle Sam’s take this year. Of course, it did not stimulate employment at all. The doom of Keynesianism lies in its refusal to understand that short-term stimulus does not promote greater interest in making long-term commitments. Only a growing private sector economy will lead business owners to increase employment commitments that ideally last for years, after months of training, and the relatively low initial productivity of most new employees.
Virtually every action of the Obama Administration, from increasing the burden cost of labor to wiping out and nationalizing industries, has made the private sector smaller. This, in turn, reduces the amount of revenue the government can extract from a dwindling economy. Increase tax rates, and the economy will shrink faster, giving the government a larger piece of a rotting pie. No Democrat should be allowed to babble about tax increases without facing the demonstrable fact of the economic black hole they have created.