Over at The New Republic, Jon Chait takes issue with my blog post from yesterday that's titled, "Why is everyone picking on the 'Bush tax cuts' rather than the 'Bush spending increases'?"
In that post, I collected a series of quotes from across the political spectrum which argue that the tax cuts pushed by George Bush in 2001 and 2003 and due to expire at the end of this year bear most of the responsibility for the massive federal deficits currently facing the nation. Folks such as Alan Greenspan want all the Bush tax cuts to expire, a move which the CBO estimates would generate $3.9 trillion over the next decade. The Obama administration and Nancy Pelosi bitch and moan about the need to increase revenue but want to keep all the Bush rates, except for those affecting indivduals making over $200,000 and households making more than $250,000 a year. The CBO estimates that just dinging top income earners would pull in about $700 billion over the next decade.
The point of my post is given away in its title (sorry, I'm not good at building suspense): Those supporting a reversion back to Clinton-era tax policies constantly blame the Bush cuts for starving federal coffers and, hence, increasing the deficit. Why partisans such as Obama and Pelosi would then argue that 82 percent of foregone revenue—$3.2 trillion out of $3.9 trillion—should go uncollected is understandable in light of electoral politics. But that doesn't make it any less deceitful. Indeed, as I point out in a New York Post op-ed today, Speaker Pelosi is now crowing about "Obama middle-income tax cuts," which apparently refers to Obama maintaining the Bush rates for the foreseeable future.
What I showed in the post is that in fact federal revenue increased nicely under Bush, despite the tax cuts. Revenues tailed off at the end of his reign of error, because of the recession and the financial crisis (caused largely by idiotic government policies).
Unfortunately, what I also showed is that federal spending was thoroughly jacked through the ceiling. In fact, in the eight years in which Bush was responsible for the federal budget, most of which featured a supposedly conservative Republican majority, total outlays increased by an unbelievable 104 percent. That's adjusted for inflation and includes entitlements and discretionary spending. There's no way around the reality that Bush was, as I put it in a valedictory op-ed in the Wall Street Journal, a Big Government Disaster.
Which brings me to Chait's huffy rejoinder to my post. Chait is a reliable Democratic partisan, so he always gets his panties in a bunch whenever anyone anywhere says anything that might imperil the righteousness of his tribal affiliation. Chait generously titles his post "How Tax Cuts Dupe Conservatives: A Case Study," and then goes on to inform his readers:
Most people have very little understanding of economic and fiscal policy, so it's easy to convince anybody with a general predilection for small government that regressive, debt-financed tax cuts are advancing the small government cause.
A perfect example is this column by Nick Gillespie, editor of the libertarian magazine Reason. Gillespie is not a policy wonk, nor is he a reflexive GOP partisan. So it is instructive to watch him work toward the position that the Bush tax cuts must be made permanent.
So there I am, despite libertarian bona fides up the ying-yang, a conservative dupe (hi, Mom!) for pointing out that George W. Bush's real crime against future generations was not cutting various taxes but for kicking the jams out on any sort of fiscal restraint. To that charge, I gladly plead guilty (though I should point out that Matt Welch is the editor of Reason magazine; I'm the editor of Reason.tv and Reason.com). It's not rocket science to figure out that even if you're taking in more and more money, you'll go broke pretty quick if you spend even more and more money.
Which is what Bush and the Republicans (and then the Democrats) did. And I certainly stand by my conclusion that "to talk about how 'tax cuts' inexorably add to deficits ignores the amount of tribute that poured into D.C. throughout most of the '00s. It's a fundamentally faulty and fruitless discussion." Precisely because it simply doesn't even acknowledge the spending side of the equation. Read through Chait's post and you'll see what I mean. He's fixated on revenue. But spending matters too.
The government also experienced year-to-year drops in revenue from 2001 to 2002, reflecting both the shaky economy and the effects of the Bush tax cuts. Gillespie oddly fails to include those years, instead leaning on the strange implication that the Bush tax cuts began in 2002. Moreover, he excludes the drop in nominal revenue in 2008, which he attributes to the recession. Obviously, though, economic conditions work both ways. When the economy is expanding, revenue tends to rise even in the absence of policy change. When the economy is contracting, it tends to drop. Gillespie's approach is to ignore the state of the economy when it creates data that seems to bolster his argument, and to take account of the economy when it creates data that undermines it.
There's nothing odd about starting with 2002, which is the first year that Bush had full control of the federal budget. Again, the proper focus of attention should be on revenue and spending, not simply revenue. I end with 2009 because, again, that's when Bush gets the heave-ho (and in fact, as I note in the post, 2009's budget includes some last-minute spending by Obama because the government didn't clear everything up before Bush left office).
Even more Chait:
Inflation, population growth, and a growing economy all impact the value of a given dollar sum of taxation of spending. Pointing out that the nominal size of government is growing is a nice tactic to use for the Rush Limbaugh audience. Any remotely serious economist looks at revenue and spending as a proportion of the economy.
Hey, I want to be remotely serious too! There's no question that looking at revenue and outlays as a percentage of GDP is an important measure, which is one of the reasons why I do it all the time, such as in this post. Here's how revenue as a percentage of GDP fared in the '00s (and I'm including 2001 as a sop to Chait):
2001 10286.2 19.36 a 2002 10642.3 17.42 a 2003 11142.1 16.00 a 2004 11867.8 15.84 a 2005 12638.4 17.04 a 2006 13398.9 17.97 a 2007 14077.6 18.24 a 2008 14441.4 17.48 a 2009 14258.2 14.76 a
That comes to an average of about 17 percent, a point lower than that the post-war historical average of about 18 percent.
And what about spending as percentage of GDP over the same period?
2001 10286.2 18.11 a 2002 10642.3 18.90 a 2003 11142.1 19.39 a 2004 11867.8 19.32 a 2005 12638.4 19.56 a 2006 13398.9 19.82 a 2007 14077.6 19.38 a 2008 14441.4 20.65 a 2009 14258.2 24.67 a
Average federal spending was about 20 percent, or about 3 percentage points higher than revenue.When you look at these figures, it becomes pretty obvious where the deficits come from: From spending more money than the amount coming in.
To the right is a graph that spells out the mismatch. Do you need to be a remotely serious economist to get the picture? And as AOL News' John Merline points out in the story accompanying that graph, good luck goosing revenue higher than 18 percent. It happens from time to time (in fact, it did so under Bill Clinton, who also increased total spending a relatively measly 11 percent over eight years), but it is the exception to the rule.
But more importantly—and directly to Chait's churlish dismissal that year-over-year amounts don't count for shit – I want to make the point that simply discussing amounts as percentages of GDP misses a huge amount of information. There is absolutely no reason to assume that government revenue or spending can or should stay equal as a percentage of GDP forever and ever. Various defense hawks argue, for instance, that defense spending should always be 4 percent of the federal budget. Why? Because they say so. That's as unconvincing an argument as saying that if you make $10,000 a year and food is 20 percent of your budget, it should still be 20 percent of your budget when you make $100,000. There is an exhaustible limit of how much a family or a country should spend on various goods and services. Is there any reason why Medicare should always be a set percentage of the budget? Or education? Or AmeriCorps? Or abstinence-only sex ed programs? Or anything? The short answer is no, of course not. Unless, of course, you're trying to bias the discussion toward the status quo.
Chait winds up with:
There's just a lot of vaguely anti-government, anti-Obama hand-waving, culminating in the conclusion that we should stop blaming the Bush tax cuts for contributing to the deficit. It's a telling portrait of how your tertiary anti-government type goes about deciding to sign up for Team Tax Cuts.
I am not sure if being called a "tertiary anti-government type" is more or less of an insult than being called a "conservative dupe." Given that in the past I've been called everything from an "apologist for stupefaction" to "a gay Elvis impersonator" to "the free-market Fonzie" to "a dishonest whore for the wealthy" (this last treat coming from an emailer who had just glossed Chait's post), I take insults and compliments where I find them.
Sure, I'm anti-Obama. Every bit as much as I was anti-Bush. But that's really neither here nor there when it comes to looking at how Bush spent our way to the poorhouse. It's Bush's spending policies—recall that he increased inflation-adjusted outlays by 104 percent!—that were his major contribution to deficits, not his tax cuts. While I'm not a member of "Team Tax Cuts" (whatever that is), I do like the idea of people keeping more of their own money.
After all, it is their money and I'm betting they can put it to better use than Tim Geithner or Hank Paulson. Or Gen. Petraeus for that matter. I'm foolish enough to think that government can and should live within its means, which does qualify as a tertiary position since neither the Democrats nor the Republicans (or their handmaiden journalists) seem to agree.