Well defense spending certainly did increase, and even folks like me who argue that defense is one of the few legitimate functions of the federal government can agree that there's plenty of waste in defense spending just as there is in everything the government spends money on. But while defense spending did increase under Bush, it only increased to budget levels of the mid-1990s (ie. it basically gave back part of the post cold war 'peace' dividend that Clinton inherited, and in fact has increased to higher levels under Obama than Bush).
So blaming defense for the current debt level is a bit stretched. Let's examine his favorite bete noire, tax cuts "for the rich".
The bulk of Bush's tax cuts took place in 2003.
Head of household
| Tax Year 2002[3] | Tax Year 2003[4] | ||
| Income level | Tax rate | Income level | Tax rate |
|---|---|---|---|
| up to $10,000 | 10% | up to $10,000 | 10% |
| $10,000 - $37,450 | 15% | $10,000 - $38,050 | 15% |
| $37,450 - $96,700 | 27% | $38,050 - $98,250 | 25% |
| $96,700 - $156,600 | 30% | $98,250 - $159,100 | 28% |
| $156,600 - $307,050 | 35% | $159,100 - $311,950 | 33% |
| over $307,050 | 38.6% | over $311,950 | 35% |
So if the tax cut is the cause of the current debt problem there must've been a massive drop in tax revenue due to the tax cut.
There was a small drop from 2002 to 2003 from $1853bln to $1782bln, a revenue drop of $70bln. But from 2003 to 2008, before the Great Recession, tax revenue increased to $2524bln, an increase of $742 bln. Hmmm, a mystery... tax revenue increased by $742bln (or $672bln if you want to include the 2003 drop), which is 7.2%/yr, and yet deficits increased. How could that possibly have happened. It's apparently a mystery to Nobel winning Krugman, because he thinks it's the tax cuts. Oh wait, the table linked above has another column labelled Outlays. It shows that spending in 2003 was $2159bln. Ooh, less than receipts...not good. But by 2008, the Outlays had increased to $2982bln, a rise of $823bln. Less the $742bln in tax revenue increases this comes to increased debt of $81bln.
Then the Great Recession hits and as folks get layed off, incomes drop the tax revenue drops because there is less to tax. From 2008 to 2010 tax revenue dropes from $2524bln to $2162bln, or $362bln. But not trillions yet and to blame the 2003 Bush tax cut for a revenue drop during a deep recession is a bit disengenuous. And do I hear someone ask "How did we get multi trillion dollars in more debt if tax revenues only dropped $362bln?". Glad you asked. If we look again at the column marked Outlays (i.e. what the government spends) we find that spending increased from $2982bln to $3456bln, an increase of $474bln, with 2011 spending expected to be $3818bln.
So blaming Bush tax cuts rather than profligate spending is a bit hard to swallow when tax revenues have increased. Granted increased defense spending was part of the increased outlay column but the 2008+ congress has been on a spending spree. And none of this even gets to the real source of budget difficulty, of which the current spending is only a tiny part. The real problem comes from looming unfunded liabilities for social security, medicare, medicaid, government pensions, etc... which are not included on budget. You can see current estimates in the running counters at the upper right of the blog. Note that these are very rough estimates, and papers written estimating the present value of these liabilites run from $50 trillion to over $100 trillion. But these are all present-value estimates, so take your best guess and add it to the $14+ trillion of current debt. Also add other off balance liabilities such as writedowns from the Fannie/Freddie guarantees, future GM/Chrysler losses, future losses on the Feds massively expanded portfolio and greatly increased interest costs in the budget if interest rates rise, etc... You can assign your own estimates to each of these, maybe you think the government will skirt these current and potential losses somehow, but it still leaves massive levels of debt and future debt which, like Greece (and Portugal and Ireland etc... cannot be paid).
[All of the above analysis used nominal dollars, but similar results come from using constant dollars which you can also find at the link, but keep in mind that inflation is just another government tax.]
Posts
No comments:
Post a Comment