Brad Manning
2011-05-01 18:30:31 UTC
"The biggest culprit, by far, has been an erosion of tax revenue
triggered largely by two recessions and multiple rounds of tax cuts.
Together, the economy and the tax bills enacted under former president
George W. Bush ... wiped out $6.3 trillion in anticipated
revenue."
I don't think we'll see any mention of "The Great Bush Depression" in
his so-called Presidential Library, or, as he calls it, "liberry."
---------------------------
"Running in the red: How the U.S., on the road to surplus, detoured to
massive debt"
By Lori Montgomery
April 30, 2011
THE NATION'S UNNERVING DESCENT into debt began a decade ago with a
choice, not a crisis.
In January 2001, with the budget balanced and clear sailing ahead, the
Congressional Budget Office forecast ever-larger annual surpluses
indefinitely. The outlook was so rosy, the CBO said, that Washington
would have enough money by the end of the decade to pay off everything
it owed.
Voices of caution were swept aside in the rush to take advantage of
the apparent bounty. Political leaders chose to cut taxes, jack up
spending and, for the first time in U.S. history, wage two wars solely
with borrowed funds. “In the end, the floodgates opened,” said former
senator Pete Domenici (R-N.M.), who chaired the Senate Budget
Committee when the first tax-cut bill hit Capitol Hill in early 2001.
Now, instead of tending a nest egg of more than $2 trillion, the
federal government expects to owe more than $10 trillion to outside
investors by the end of this year. The national debt is larger, as a
percentage of the economy, than at any time in U.S. history except for
the period shortly after World War II.
Polls show that a large majority of Americans blame wasteful or
unnecessary federal programs for the nation’s budget problems. But
routine increases in defense and domestic spending account for only
about 15 percent of the financial deterioration, according to a new
analysis of CBO data.
The biggest culprit, by far, has been an erosion of tax revenue
triggered largely by two recessions and multiple rounds of tax
cutsTogether, the economy and the tax bills enacted under former
president George W. Bush, and to a lesser extent by President Obama,
wiped out $6.3 trillion in anticipated revenue. That’s nearly half of
the $12.7 trillion swing from projected surpluses to real debt.
Federal tax collections now stand at their lowest level as a
percentage of the economy in 60 years.
Big-ticket spending initiated by the Bush administration accounts for
12 percent of the shift. The Iraq and Afghanistan wars have added $1.3
trillion in new borrowing. A new prescription drug benefit for
Medicare recipients contributed another $272 billion. The Troubled
Assets Relief Program bank bailout, which infuriated voters and led to
the defeat of several legislators in 2010, added just $16 billion —
and TARP may eventually cost nothing as financial institutions repay
the Treasury.
Obama’s 2009 economic stimulus, a favorite target of Republicans who
blame Democrats for the mounting debt, has added $719 billion — 6
percent of the total shift, according to the new analysis of CBO data
by the nonprofit Pew Fiscal Analysis Initiative. All told, Obama-era
choices account for about $1.7 trillion in new debt, according to a
separate Washington Post analysis of CBO data over the past decade.
Bush-era policies, meanwhile, account for more than $7 trillion and
are a major contributor to the trillion-dollar annual budget deficits
that are dominating the political debate.
As Congress prepares this week to launch a high-stakes battle over
whether to raise the legal limit on borrowing, the analyses offer a
clearer view of the drivers of the debt — and of the difficulty of re-
balancing the budget without new tax revenue.
Most Republicans reject raising taxes as part of the solution; House
Speaker John A. Boehner (Ohio) has called it a “non-starter.” But
Democrats won’t go for a proposal based solely on spending cuts.
The“Gang of Six,” a bipartisan Senate group dedicated to debt
reduction, is expected to unveil a strategy as soon as this week that
couples sharp spending cuts with a rewrite of the tax code that would
raise additional revenue.
(The debt ceiling, set at $14.3 trillion, covers all federal debt,
including money the Treasury owes other federal entities, such as the
Social Security trust fund. The CBO data focus on the portion of the
debt borrowed from outside investors. The debt is the accumulation of
annual deficits; if annual budgets are in surplus, the nation can pay
down the debt.)
The annual surpluses that set the nation on this course emerged in the
final years of the Clinton administration. In the typical American
household, a surplus comes as welcome news. But the White House is not
a typical household. When Treasury Secretary Robert Rubin saw the
budget shift into the black in 1998, he immediately warned President
Bill Clinton that, politically, it was a mixed blessing.
Rubin wanted to use the surplus to start repaying the debt, which was
then just more than $3 trillion. The White House billed it as “saving
Social Security first,” viewing the surplus as an opportunity to shore
up the nation’s finances before huge numbers of the baby boom
generation began claiming federal retirement benefits. “The problem
was a whole other part of the political spectrum wanted to use the
surplus for tax cuts,” Rubin said in an interview. “They said they
wanted to give the people back their money. Of course, it was also the
people’s debt.”
What to do with the surplus became a central issue of the 2000
presidential campaign, with Vice President Al Gore arguing that much
of it should be put in a “lockbox” to protect Social Security and
Medicare. Bush pushed for a broad tax cut, arguing that taxpayers at
all income levels were owed a refund. “Some say that the growing
federal surplus means Washington has more money to spend, but they’ve
got it backwards,” Bush said as he accepted the GOP nomination in
August 2000. “The surplus is not the government’s money. The surplus
is the people’s money.”
As soon as he took office, Bush pushed Congress to make good on his
tax pledge. Less than a week after his inauguration, he got a boost
from Federal Reserve Chairman Alan Greenspan, who testified before the
Senate Budget Committee that “tax reduction appears required” to
prevent the federal government from accumulating too much cash.
Greenspan feared that large surpluses would turn the government into
the nation’s largest investor, creating distortions in the markets.
A chorus of skeptics warned against spending the surplus. Some
stressed the inherent uncertainty of the CBO projections. Others said
a big tax cut would unleash pent-up desire in both parties to pursue
expensive priorities without the pay-as-you-go restraints that had
helped produce the surplus.
Congress approved a $1.35 trillion tax cut in record time. A second
package, worth $350 billion, followed in 2003. Together, they
constituted one of the largest tax cuts since World War II, according
to the conservative Tax Foundation.
Bush’s first Treasury secretary, Paul O’Neill, resigned after the
White House decided to pursue the 2003 measure. “I believed we needed
the money to facilitate fundamental tax reform and begin working on
unfunded liabilities for Social Security and Medicare,” O’Neill said
in an interview. But the White House, he said, was focused on
improving economic growth for the fourth quarter of 2004. “They wanted
to make sure economic conditions were great going into the president’s
reelection.”
Proponents of tax cuts argue that the legislation merely returned tax
collections to their appropriate levels. They note that the CBO’s 2001
forecast assumed that tax collections would stay above 20 percent of
the nation’s gross domestic product (defined as the total of all
economic output) — well above the historic average of 18 percent of
GDP.
“It’s not obvious that America was ready to have taxes at a level this
high persistently,” said Donald Marron, a former CBO director who now
heads the nonprofit Tax Policy Center. “Some degree of tax cutting was
inevitable.”
But some key advocates of the tax cuts now say such a large reduction
was probably ill-advised.
“Nobody would have thought that all these things would have happened
after you cut taxes,” Domenici said. “That you’d have two wars and not
pay for them. That you’d have another recession. A huge extravaganza
of expenditures” for the military and homeland security after the
Sept. 11, 2001, attacks. “You would pause before you did it, if you
knew.”
Bill Thomas, the former House Ways and Means Committee chairman who
helped shepherd the tax cuts through Congress, defended the 2003
package as “fuel for the economy.” But he said in an interview that
the 2001 measure was larded with “stuff that I was not all that wild
about,” including bipartisan priorities such as a big increase in the
child tax credit and a break for married couples — provisions Thomas
believes did little to promote economic growth and amounted to
“throwing money out the window.”
“I couldn’t do anything about it,” said Thomas, a California
Republican who retired in 2006. “You’re the candy man when you
advocate those kinds of tax cuts.”
In the end, Bush cut taxes and spent more money. Good times masked the
impact, as surging tax revenues reduced the size of year-to-year
deficits during the first three years of his second term. But after
the economy collapsed during Bush’s final year in office, deficits —
and therefore the debt — began to explode as Obama sought to revive
economic activity with more tax cuts and federal spending.
Today, the CBO forecasts are unrelievedly gloomy, showing huge
deficits essentially forever. As policymakers grapple with the legacy
of the past decade, a demographic wave of senior citizens is crashing
at their doorstep, driving up the cost of Medicare, Medicaid and
Social Security.
William Hoagland, who was for years a top budget aide to Domenici and
other GOP Senate leaders, said it is simplistic to think today’s
fiscal problems began just 10 years ago. In 1976, as a young CBO
analyst, Hoagland produced a long-term simulation that showed
entitlement costs gradually overwhelming the rest of the federal
budget.
“This situation really goes back to long before [the Bush
administration], which is to say to old dead men that have long left
the Congress,” he said.
Still, Hoagland said, the abandonment of fiscal discipline in the wake
of the surpluses clearly didn’t help. “Nobody pushed for paying for
this stuff,” he said. Not even after “it became very clear in the
middle of 2003 that the line had turned on us. And the surpluses as
far as the eye could see were no longer there.”
http://www.washingtonpost.com/business/economy/running-in-the-red-how-the-us-on-the-road-to-surplus-detoured-to-massive-debt/2011/04/28/AFFU7rNF_story.html
triggered largely by two recessions and multiple rounds of tax cuts.
Together, the economy and the tax bills enacted under former president
George W. Bush ... wiped out $6.3 trillion in anticipated
revenue."
I don't think we'll see any mention of "The Great Bush Depression" in
his so-called Presidential Library, or, as he calls it, "liberry."
---------------------------
"Running in the red: How the U.S., on the road to surplus, detoured to
massive debt"
By Lori Montgomery
April 30, 2011
THE NATION'S UNNERVING DESCENT into debt began a decade ago with a
choice, not a crisis.
In January 2001, with the budget balanced and clear sailing ahead, the
Congressional Budget Office forecast ever-larger annual surpluses
indefinitely. The outlook was so rosy, the CBO said, that Washington
would have enough money by the end of the decade to pay off everything
it owed.
Voices of caution were swept aside in the rush to take advantage of
the apparent bounty. Political leaders chose to cut taxes, jack up
spending and, for the first time in U.S. history, wage two wars solely
with borrowed funds. “In the end, the floodgates opened,” said former
senator Pete Domenici (R-N.M.), who chaired the Senate Budget
Committee when the first tax-cut bill hit Capitol Hill in early 2001.
Now, instead of tending a nest egg of more than $2 trillion, the
federal government expects to owe more than $10 trillion to outside
investors by the end of this year. The national debt is larger, as a
percentage of the economy, than at any time in U.S. history except for
the period shortly after World War II.
Polls show that a large majority of Americans blame wasteful or
unnecessary federal programs for the nation’s budget problems. But
routine increases in defense and domestic spending account for only
about 15 percent of the financial deterioration, according to a new
analysis of CBO data.
The biggest culprit, by far, has been an erosion of tax revenue
triggered largely by two recessions and multiple rounds of tax
cutsTogether, the economy and the tax bills enacted under former
president George W. Bush, and to a lesser extent by President Obama,
wiped out $6.3 trillion in anticipated revenue. That’s nearly half of
the $12.7 trillion swing from projected surpluses to real debt.
Federal tax collections now stand at their lowest level as a
percentage of the economy in 60 years.
Big-ticket spending initiated by the Bush administration accounts for
12 percent of the shift. The Iraq and Afghanistan wars have added $1.3
trillion in new borrowing. A new prescription drug benefit for
Medicare recipients contributed another $272 billion. The Troubled
Assets Relief Program bank bailout, which infuriated voters and led to
the defeat of several legislators in 2010, added just $16 billion —
and TARP may eventually cost nothing as financial institutions repay
the Treasury.
Obama’s 2009 economic stimulus, a favorite target of Republicans who
blame Democrats for the mounting debt, has added $719 billion — 6
percent of the total shift, according to the new analysis of CBO data
by the nonprofit Pew Fiscal Analysis Initiative. All told, Obama-era
choices account for about $1.7 trillion in new debt, according to a
separate Washington Post analysis of CBO data over the past decade.
Bush-era policies, meanwhile, account for more than $7 trillion and
are a major contributor to the trillion-dollar annual budget deficits
that are dominating the political debate.
As Congress prepares this week to launch a high-stakes battle over
whether to raise the legal limit on borrowing, the analyses offer a
clearer view of the drivers of the debt — and of the difficulty of re-
balancing the budget without new tax revenue.
Most Republicans reject raising taxes as part of the solution; House
Speaker John A. Boehner (Ohio) has called it a “non-starter.” But
Democrats won’t go for a proposal based solely on spending cuts.
The“Gang of Six,” a bipartisan Senate group dedicated to debt
reduction, is expected to unveil a strategy as soon as this week that
couples sharp spending cuts with a rewrite of the tax code that would
raise additional revenue.
(The debt ceiling, set at $14.3 trillion, covers all federal debt,
including money the Treasury owes other federal entities, such as the
Social Security trust fund. The CBO data focus on the portion of the
debt borrowed from outside investors. The debt is the accumulation of
annual deficits; if annual budgets are in surplus, the nation can pay
down the debt.)
The annual surpluses that set the nation on this course emerged in the
final years of the Clinton administration. In the typical American
household, a surplus comes as welcome news. But the White House is not
a typical household. When Treasury Secretary Robert Rubin saw the
budget shift into the black in 1998, he immediately warned President
Bill Clinton that, politically, it was a mixed blessing.
Rubin wanted to use the surplus to start repaying the debt, which was
then just more than $3 trillion. The White House billed it as “saving
Social Security first,” viewing the surplus as an opportunity to shore
up the nation’s finances before huge numbers of the baby boom
generation began claiming federal retirement benefits. “The problem
was a whole other part of the political spectrum wanted to use the
surplus for tax cuts,” Rubin said in an interview. “They said they
wanted to give the people back their money. Of course, it was also the
people’s debt.”
What to do with the surplus became a central issue of the 2000
presidential campaign, with Vice President Al Gore arguing that much
of it should be put in a “lockbox” to protect Social Security and
Medicare. Bush pushed for a broad tax cut, arguing that taxpayers at
all income levels were owed a refund. “Some say that the growing
federal surplus means Washington has more money to spend, but they’ve
got it backwards,” Bush said as he accepted the GOP nomination in
August 2000. “The surplus is not the government’s money. The surplus
is the people’s money.”
As soon as he took office, Bush pushed Congress to make good on his
tax pledge. Less than a week after his inauguration, he got a boost
from Federal Reserve Chairman Alan Greenspan, who testified before the
Senate Budget Committee that “tax reduction appears required” to
prevent the federal government from accumulating too much cash.
Greenspan feared that large surpluses would turn the government into
the nation’s largest investor, creating distortions in the markets.
A chorus of skeptics warned against spending the surplus. Some
stressed the inherent uncertainty of the CBO projections. Others said
a big tax cut would unleash pent-up desire in both parties to pursue
expensive priorities without the pay-as-you-go restraints that had
helped produce the surplus.
Congress approved a $1.35 trillion tax cut in record time. A second
package, worth $350 billion, followed in 2003. Together, they
constituted one of the largest tax cuts since World War II, according
to the conservative Tax Foundation.
Bush’s first Treasury secretary, Paul O’Neill, resigned after the
White House decided to pursue the 2003 measure. “I believed we needed
the money to facilitate fundamental tax reform and begin working on
unfunded liabilities for Social Security and Medicare,” O’Neill said
in an interview. But the White House, he said, was focused on
improving economic growth for the fourth quarter of 2004. “They wanted
to make sure economic conditions were great going into the president’s
reelection.”
Proponents of tax cuts argue that the legislation merely returned tax
collections to their appropriate levels. They note that the CBO’s 2001
forecast assumed that tax collections would stay above 20 percent of
the nation’s gross domestic product (defined as the total of all
economic output) — well above the historic average of 18 percent of
GDP.
“It’s not obvious that America was ready to have taxes at a level this
high persistently,” said Donald Marron, a former CBO director who now
heads the nonprofit Tax Policy Center. “Some degree of tax cutting was
inevitable.”
But some key advocates of the tax cuts now say such a large reduction
was probably ill-advised.
“Nobody would have thought that all these things would have happened
after you cut taxes,” Domenici said. “That you’d have two wars and not
pay for them. That you’d have another recession. A huge extravaganza
of expenditures” for the military and homeland security after the
Sept. 11, 2001, attacks. “You would pause before you did it, if you
knew.”
Bill Thomas, the former House Ways and Means Committee chairman who
helped shepherd the tax cuts through Congress, defended the 2003
package as “fuel for the economy.” But he said in an interview that
the 2001 measure was larded with “stuff that I was not all that wild
about,” including bipartisan priorities such as a big increase in the
child tax credit and a break for married couples — provisions Thomas
believes did little to promote economic growth and amounted to
“throwing money out the window.”
“I couldn’t do anything about it,” said Thomas, a California
Republican who retired in 2006. “You’re the candy man when you
advocate those kinds of tax cuts.”
In the end, Bush cut taxes and spent more money. Good times masked the
impact, as surging tax revenues reduced the size of year-to-year
deficits during the first three years of his second term. But after
the economy collapsed during Bush’s final year in office, deficits —
and therefore the debt — began to explode as Obama sought to revive
economic activity with more tax cuts and federal spending.
Today, the CBO forecasts are unrelievedly gloomy, showing huge
deficits essentially forever. As policymakers grapple with the legacy
of the past decade, a demographic wave of senior citizens is crashing
at their doorstep, driving up the cost of Medicare, Medicaid and
Social Security.
William Hoagland, who was for years a top budget aide to Domenici and
other GOP Senate leaders, said it is simplistic to think today’s
fiscal problems began just 10 years ago. In 1976, as a young CBO
analyst, Hoagland produced a long-term simulation that showed
entitlement costs gradually overwhelming the rest of the federal
budget.
“This situation really goes back to long before [the Bush
administration], which is to say to old dead men that have long left
the Congress,” he said.
Still, Hoagland said, the abandonment of fiscal discipline in the wake
of the surpluses clearly didn’t help. “Nobody pushed for paying for
this stuff,” he said. Not even after “it became very clear in the
middle of 2003 that the line had turned on us. And the surpluses as
far as the eye could see were no longer there.”
http://www.washingtonpost.com/business/economy/running-in-the-red-how-the-us-on-the-road-to-surplus-detoured-to-massive-debt/2011/04/28/AFFU7rNF_story.html