Inconvenient Truths: Taxes, Deficits and the Republican Line

by: cliffNH

Mon Sep 20, 2010 at 13:20:30 PM EDT

The fiscal 2010 deficit will be about $1.4 trillion.  Where does it come from?  Not financial bailouts.  TARP (which, it is hard to remember, was enacted under Bush with the full and aggressive support of the entire Republican leadership: McCain, Palin, Boehner, McConnell and Gregg) plus relief to the Fannie Mae and Freddie Mac mortgage companies was actually $32 billion in the black in 2010, thanks to so many banks paying back their loans with interest.  Not the auto industry bailout (which also began under Bush), which is now estimated to cost a total of no more than $12 Billion, and then there is the likelihood that the government will make a big profit from the GM public offering.  Health care reform had a negligible effect on the budget in 2010, and is actually projected to decrease the deficit over time as the cost-cutting measures take force.

The biggest culprit by far is the economic downturn, which cost $455 billion in lost receipts and increased cost of existing safety net programs like unemployment and food stamps.  We can all have opinions as to whether the Republican policies were good or bad, but the fact is that the economy collapsed under Bush's watch, after 8 years of Republican-dominated policy, and has been too slowly but steadily improving  under Obama.

The Bush tax cuts cost $336 billion in 2010 (and by the way, if they are extended, will cost a total of $4.8 Trillion over the next 10 years).  The cost of the wars in Iraq and Afghanistan cost $191 Billion, and Bush's Medicare drug plan cost $68 Billion in 2010.  Obama's stimulus packages cost $412 Billion in 2010.  The Republicans all claim it was a failure, but look at the facts:  Often ignored is the fact that the single biggest part of the stimulus (38% overall, a much higher proportion in 2010)) was tax relief - mostly for individuals as payroll tax credits and a reduction in the Alternative Minimum Tax.  And the non-partisan CBO estimates that in the second quarter of calendar year 2010, it raised real  gross GDP by between 1.7 percent and 4.5 percent, lowered the unemployment rate by between 0.7 percentage points and 1.8 percentage points and put 3.3 million people to work.  Those are calculations based on fact, not political opinion.

So the fact is that without the effects of Bush's economic collapse and the stimulus it fostered, his wars, tax cuts and Medicare expansion, Obama's policies alone would have yielded a budget surplus in 2010.  Even if you argue that the spending part of the stimulus was unnecessary and keep only the tax cuts, they plus the Bush-era economic collapse and programs alone represent about 90% of the deficit.  These are the facts.  It's just arithmetic.  Nothing here to argue with.

Is Obama's spending out of control?  Obama's total 2011 spending proposal is up 3% over 2010.  There are increases in defense, homeland security and energy research.  50% of the remaining departments saw their budgets cut.  By comparison, Ronald Reagan's 1985 budget increased 11%.  G. W. Bush's last budget increase was 18%.  Even his first budget - before 9/11 happened - was up 8%.

What about pork?  What about some perspective.  The total cost of all earmarks in fiscal 2010, from all senators and members of congress combined, was $15.9 Billion.  As bad as they are, earmarks add up to less than one half of one percent of the budget, only 1% of the deficit.  What if we eliminate some of the Tea Party's favorite targets?  Department of Education?  1.3% of the budget.  EPA?  Less than one-third of one percent of the budget.  The fact is that 81% of the budget goes to mandatory programs (social security, Medicare, Medicaid, interest on the debt- nothing Obama or the current congress has anything to do with) plus the departments of defense and homeland security, where the Republicans are pushing to spend more, not less.

The total public debt is about $13.4 trillion.  Where did it come from?  Obama has added about $1.5 trillion to it so far.  The total debt was $5.8 trillion before Bush's first budget and $11.9 trillion after his last - so he added $6.1 trillion.  Clinton added $1.4 trillion over 8 years and ended up with a surplus.  Bush 41 added $1.6 Trillion, and Reagan almost tripled the debt from when he took office, adding $1.9 trillion.  So 93% of the debt that has been added in the last 30 years has been added by Republican administrations.  Those are just the facts.

Finally, the Republicans complain that Obama's taxes are too high, and that we should reduce taxes to increase job growth.  There is lots of political opinion, but absolutely no evidence that further tax cuts for the wealthy will spur employment.  Remember that Obama actually decreased taxes substantially in the stimulus, and has proposed decreasing them further on small businesses this year.  In fact, taxes are right now just about as low as they have been in decades.  Throughout the 1950's, the top marginal tax rate was 91%.  By the 70's, it dropped to 70%.  Reagan dropped it to 33%, it was 40% for most of the Clinton years, and it is currently 35%.  Our biggest boom years, under Eisenhower and Clinton, were when taxes were higher, and when taxes were dropped, under Reagan and Bush, we had economic stagnation.  The nonpartisan CBO just analyzed the short-term effects of 11 policy options and found that extending the tax cuts would be the least effective way to spur the economy and reduce unemployment. The report added that tax cuts for high earners would have the smallest "bang for the buck," because wealthy Americans were more likely to save their money than spend it.

I just wonder what the Republican candidates would say if their opinions and rantings were challenged with these facts.  It's unfortunate that we never get to see that.

Cliff Conneighton
Hollis, NH
cliff@conneighton.com