Recently I had a dialog with someone who strongly supports the Bush (GW bush) tax cuts. While I appreciate the perspective of those who favored Bush’s tax cuts, I am also concerned with the size of the deficit and the debt.
If more people were able to analyze the effect of these tax cuts on the budget bottom line – they might have a somewhat different view of the benefits of the Bush tax cuts.
Some make the argument that total revenues collected collected after the Bush, Reagan, and Kennedy tax cuts increased more than if these tax cuts were not in place or than the revenues collected under the higher tax rates in effect prior to these cuts. Total revenues did go up in the years after the Bush, Reagan, and Kennedy tax cuts. But total revenues also went up in the years preceding these tax cuts. For the most part the Gross Domestic Product of the United States rises every year (there are exceptions – such as when the economy is in recession). Assuming the federal revenues have a constant relationship with the GDP, federal revenues should go up simply because the GDP increases year over year.
Republicans often criticize Democrats for being "tax and spend liberals". However, under recent Republican administrations, the federal budget deficit continued to grow at an alarming rate. You might say Republican are “tax and borrow conservatives”.
Republicans accuse Democrats of wanting bigger government. While Republicans “say” they are for smaller government, I am not aware of any President (Republican or Democrat) who left office having cut the size of the government. Clinton certainly made progress with balancing the budget and achieving a surplus for a short period, but the size of his government at the end of his second term was greater than it was when he first took office.
So it seems everybody, regardless of what the espouse, Democrat or Republican, Red State or Blue State, Liberal or Conservative supports policies that are tax, spend, AND borrow. Look at what the do, not what they say.
Tax cuts without spending cuts means the government needs to increase borrowing. Tax cuts coupled with spending increases means you really need to increase borrowing. I am concerned about both the long and short term effects of these spending policies and the huge debt that results.
Here is an interesting chart showing Growth of GDP (in billions of dollars) annually from 1930 to 2009
The exponential growths of GDP has fueled the exponential growth of the Federal budget over the same time frame:
This chart shows Federal Revenue as a Percent of GDP for the same timeframe
As you can see above, since WWII, Federal Revenues have fluctuated between 15% and 20% of GDP.
The next chart shows the Federal Deficit from 1901 – 2009
I find the deficit trend in the last forty years to be particularly alarming. Up until the mid-1970s, with the exception of WWII, the federal deficit seemed to be reasonably well constrained. At one point, during the Clinton administration, there was actually a significant surplus for a period of several years. But this has been more than offset by the dramatic deficits in the last decade.
Finally, the Federal Debt for the Years 1901-2009
If this doesn’t alarm you or make you concerned that Federal Spending is out of control, I am not sure what will!