Over the last few months, politicians in Washington D.C. have made a remarkable discovery: The United States has a large – and growing – budget deficit.
While I congratulate them on their observational skills, I can’t help but wonder: Why is the deficit suddenly such a big deal now? It has been growing for 10 years, since Bush became president, and no one seemed to notice or care. Plus, it is not projected to cause major problems for another 20-30 years.
Picking 2010 as the year to tackle the deficit seems completely random. In fact, from an economic point of view, this is probably the worst possible time to try to pay back the deficit. The US economy is in shambles, and it just barely looks like it might be limping towards recovery. The government deciding to reduce the deficit now is like a person deciding she wants to pay back all her college loans right after she lost her job. It makes no sense.
The ideas floating around about how to cut the deficit in the middle of an economic downturn don’t make much sense either. For example, Republicans (and some Democrats) say that we should cut government spending to save money. But then these same politicians are opposed to rolling back the Bush tax cuts on the grounds that such a move would jeopardize the economic recovery. This is self-contradictory, because cutting government spending has the same effect on the economy as raising taxes. Both of them reduce consumption, and therefore reduce aggregate demand.
If you think that raising taxes is a bad move right now, because it might reduce consumption and hurt the recovery, then you should think exactly the same thing about cutting spending, for the exact same reasons. Cutting the wages of government workers, for example, will reduce the total amount of money that ordinary Americans have to spend – which is exactly the same thing that would happen if we raised taxes on the working class. How can you oppose one but support the other?
I can think of only one reason for such seemingly contradictory proposals. None of this is really about reducing the deficit at all. It’s about hitting American workers while they’re down. Letting the Bush tax cuts expire would put the burden of paying the deficit on the rich, because those tax breaks were designed to benefit the rich. Cutting government spending would put the burden on working people – people who rely on government funding to send their kids to college, to pay for Medicare and Social Security and to support them when they can’t find a job thanks to the mess created by Wall Street.
The reason why Republicans and Democrats have decided to start focusing on the deficit now, of all possible times, is because we’ve been hit so hard with unemployment, foreclosures, and general financial troubles, that we are less likely to resist their attempts to transfer more wealth from us to the rich. It may be the worst time to tackle the deficit from an economic point of view, but it’s a great time to do it from the point of view of capitalist political strategy.
By the way, remember what created this deficit problem in the first place? It started with Bush’s tax cuts. At the time, Bush argued that he would actually increase government revenues by cutting taxes, because of some trickle-down theory about how the rich would start more businesses and therefore pay more taxes if we tax them less. That didn’t happen. We got a large hole in the budget instead. Next, there were the wars in Iraq and Afghanistan, which, according to CostofWar.com, have cost us over $1,108,000,000,000 (so far).Finally, there were the bailouts passed by both Republicans and Democrats in 2008 and 2009. None of these things were strictly necessary in any way. The deficit problem was created by a bunch of measures we didn’t need, and now Congress wants to fix it by cutting spending on the things we do need.
There is a pattern here, used by the ruling class with great success for a very long time: First, create a problem. Then, demand sacrifices from working people to fix that problem. Repeat as necessary.
Capitalists gambled in the stock market until the whole economy came crashing down, and then they demanded bailouts from us to pay the bill. Now, the bailouts, the Bush tax cuts and the wars have come together to cause another problem – the deficit – and once again we are asked to pay the bill. They’ll keep playing this game as long as they can get away with it.
Mike Tudoreanu is a Collegian columnist. He can be reached at [email protected].
Greg • Nov 25, 2010 at 6:28 pm
And from 1992 to 2000, following a slight increase in tax rates when Clinton took office, tax revenues rose by 87%. So, again, I don’t see what you’re trying to prove here. Your own data speaks against you.
Compared to this rise in tax collections under Clinton, the meager 30% rise under Bush is pathetic, not “sharp” or “rapid”.
Maybe you will object that I am comparing 8 years of collections growth under Clinton with only 5 years under Bush. Alright. Let’s look at only 5 years under Clinton, so the length of time is the same as 2003-2008. Which five years do you want? From 1992 to 1997, collections grew by 45%. From 1995 to 2000, they grew by 52%. Either way, collections grow faster without tax cuts than with them.
If you cut taxes, the government gets less money than it would have gotten in the absence of tax cuts. It’s common sense, and the data confirms it.
I always assumed that Tudoreanu was a liberal columnist. He identified himself as a “progressive” in a previous column, I think. Some other Op-Ed writers are members of the College Republicans, so I don’t see the problem. No one is claiming neutrality here.
By the way, in case you’re confused, yes, I’m a liberal. And you’re a conservative. I thought that was obvious.
Awake • Nov 21, 2010 at 11:29 am
Greg…from 2003 to 2008 tax revenues rose by nearly 30% while population growth, according to the 2010 census, was approximately 10%. That means that the rise in tax collections cannot be entirely, or even mostly, explained by population growth.
The drop in tax revenues from 2002 to 2003 was barely more than 3%, and was followed by the above mentioned sharp rise in collections. You rightly note that tax cuts do lead to immediate small drops in revenue, but they are historically followed by rapid increases that exceed facile explanations such as population growth or inflation.
As for partisanship, anyone familiar with Mr. Tudoreanu’s previous columns knows that his cosmetic efforts to hide his liberal bias in this particular article are merely a smokescreen. For example, calling out Republicans for saying that “should cut government spending to save money” and then adding “some Democrats” in parentheses is merely a weak attempt on his part to seem like he is some kind of middle-of-the-road moderate.
Greg • Nov 19, 2010 at 4:21 pm
Awake, your link shows that gross IRS collections went up EVERY YEAR since 1980, with only four exceptions: 1982, 2002, 2003 and 2009. In other words, gross IRS collections went up during 26 out of the past 30 years. It is perfectly normal and expected for IRS collections to go up, for the simple reason that the number of taxpayers in the United States is going up. It’s called population growth.
Sure, government revenue went up during the Bush years, but it also went up during years when there were no tax cuts. Therefore the tax cuts were useless. That’s the argument.
Also, the Bush tax cuts went into effect in 2003, and that year saw a massive decline in IRS revenues: from 2,016,627,269 to 1,952,929,045. This is right there in your own data.
Finally, I don’t understand the point of your partisan attack on the Democrats. The author of the article criticizes them as much as the Republicans.
Awake • Nov 19, 2010 at 12:45 pm
Yeah…that’s right, you must have been asleep all those years that Democrats were excoriating Bush and the Republicans for “squandering the Clinton surplus.”
And in 2006 when the Republicans were voted out…in part for not living up to their promises to keep spending low by voting for bloated farm subsidies and unfunded prescription drug benefits. It wasn’t just the anti-war crowd that wanted the Dems to control Congress, it was also disenchanted fiscal conservatives who bought the Dems lies that they would be more responsible with our money than the Republicans had been.
On a factual note…you do know that from 2003 to 2008, the years during which the economy was NOT in recession and all the Bush tax cuts were in effect, that gross IRS collections went UP every year? In other words, even though tax rates were lower, tax revenues were going up. Kind of punctures your whole point about tax cuts leading to increased deficits…
This country does not have a revenue problem, we have a spending problem.
BTW…since I know from your exchange with Alex Perry about his letter to the editor, you can find OFFICIAL data about tax revenues at the IRS website…that’s where I got my facts.
http://www.irs.gov/pub/irs-soi/09databk.pdf
You are entitled to your own opinion, uninformed as it may be, but not your own facts.