July 17, 2011

AP Claims Bush Tax Cuts Caused National Debt to Grow by $1.6 Trillion

In an unbylined update of the latest developments in the budget-tax-spending-debt ceiling discussions in Washington this morning, the Associated Press committed several blunders in attempting to explain what’s going on and how we got to where we are. First and foremost was its list identifying “contributors” to the $8.5 trillion growth in the national debt since 2001.

Here’s the AP’s you-can’t make-this-up, Comedy Central-worthy list of debt contributors:

Q: How did the debt grow from $5.8 trillion in 2001 to its current $14.3 trillion?

A: The biggest contributors to the nearly $9 trillion increase over a decade were:

- 2001 and 2003 tax cuts under President George W. Bush: $1.6 trillion.
- Additional interest costs: $1.4 trillion.
- Wars in Iraq and Afghanistan: $1.3 trillion.
- Economic stimulus package under Obama: $800 billion.
- 2010 tax cuts (these weren’t cuts at all; they were really a continuation of the current income tax structure — Ed.), a compromise by Obama and Republicans that extended jobless benefits and cut payroll taxes: $400 billion.
- 2003 creation of Medicare’s prescription drug benefit: $300 billion.
- 2008 financial industry bailout: $200 billion.
- Hundreds of billions less in revenue than expected since the Great Recession began in December 2007.
- Other spending increases in domestic, farm and defense programs, adding lesser amounts.

So I guess the AP’s assertion that the Bush tax cuts were the biggest contributor to the deficit explains why the following graph shows how government collections tanked from 2003-2007:

FederalReceipts2003thru2007.jpg

Oops. What happened?

The graph doesn’t show collections tanking, does it? Instead, the graph shows that collections increased by 44%, or almost $800 billion in four years. Adding up the individual increments in each of the four years compared to 2003 (2004 – $98B; 2005 – $371B; 2006 – $624B; 2007 – $785B; 2008, not shown, treating IRS stimulus payments as outlays instead of negative receipts – $835B), what really happened is that in the five full fiscal years after George W. Bush got the across-the-board and investment-related tax cuts he had been pushing for since taking office in 2001, the cumulative increase in tax collections was over $2.7 trillion.

Doubtless, the static analysis crowd will claim that collections would have been even higher (I guess by a cumulative $1.6 trillion, given the AP’s Democratic Party talking point above) if the Bush cuts hadn’t been enacted. Two words, guys: Prove it. Two follow-up words: You can’t.

We can argue all day long about the how much of the increase in collections was due to the incentive effects of the tax cuts and how of the improvement might have occurred anyway, but no one can credibly act as if it’s an established fact that the Bush cuts somehow caused collections to go $1.6 trillion in the opposite direction. There is absolutely no proof for this contention, and plenty of evidence that the Bush cuts jump-started an economy and federal collections, both of which had been flat or declining during the two years leading up to mid-2003. The more reasonable conclusion to reach is that the country would already be dead in the water if the Bush tax cuts hadn’t passed in 2003. Instead, the wire service hopes that its “Bush tax cuts cost us” meme will be gullibly recited during the next few days at its subscribing newspaper, TV, and radio outlets. “Disgraceful” doesn’t even begin to describe this pathetic promotion of self-evident falsehood.

The fact is that the federal budget was one good year away from balancing after the $162 deficit reported in fiscal 2007. Unfortunately, that was the last budget passed by a Republican-controlled Congress, and it was the only year which showed a modest increase in overall spending. Beginning in 2007 with effects beginning in fiscal 2008, the House and Senate controlled by Nancy Pelosi and Harry Reid began increasing spending at rates far beyond what profligate Republicans spent earlier in the decade, and, unfortunately, Bush 43 made no real effort to stop them:

UncleSamSpending2001to2008-3

If we turn the tables and (in my opinion) safely assume that there was no need to increase the overall level of spending beyond what was seen in fiscal 2007 except to allow a probably overly generous $100 billion in increases each year, the fact is that by September 2011, the Pelosi-Reid Congress and the Pelosi-Reid-Obama triumvirate will have spent roughly $2.7 trillion more than they needed to, or should have.

And oh by the way, by September 2011, the collections shortfalls since the end of fiscal 2008 will total roughly $1.3 trillion, not the “hundreds of billions” the AP lazily reported.

The AP also erred, as it did back in 2009 (and probably has done at other times not detected by yours truly), by incompletely explaining how the national debt has grown. For a separate explanation of why the wire service’s assertion that “The debt is the sum of deficits past and present” is incorrect, go here. This repeated error betrays the depth of consistent and persistent ignorance which pervade the Essential Global News Network.

Cross-posted at NewsBusters.org.

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16 Comments

  1. We must raise taxes now!…

    Federal tax revenue went down after the Bush Tax Cuts, and raising taxes is now regrettably the only way to close the giant hole in our budget…….

    Trackback by Brain Shavings — July 17, 2011 @ 4:34 pm

  2. But … but … this hurts The Narrative™!!!1! We mustn’t hurt it. No, mustn’t harm it, Precious! Gollum!

    Comment by Alo Konsen — July 17, 2011 @ 4:41 pm

  3. “Doubtless, the static analysis crowd will claim that collections would have been even higher (I guess by a cumulative $1.6 trillion, given the AP’s Democratic Party talking point above) if the Bush cuts hadn’t been enacted. Two words, guys: Prove it. Two follow-up words: You can’t.”

    Nope, indeed they can’t because if you look at our history tax revenues have always gone up after tax cuts and/or tax reductions in the code. It happened when Coolidge did it, it happened when Kennedy did it, it happened when Reagan did it, and it happened when Bush 43 did it. The statics would have to explain how that is all an amazing coincidence.

    “We can argue all day long about the how much of the increase in collections was due to the incentive effects of the tax cuts and how of the improvement might have occurred anyway…”

    True, we could argue that with the statists but it would be a one-sided argument since the simple fact is the revenues did not go up or show much signs of life until AFTER the reductions. That would have to have be yet another in the string of those “amazing coincidences” cited above if the cuts had nothing to do with it.

    Also, the AP putting a large amount of blame on the deficit on Iraq and Afghanistan is also wrong. As Tom here has pointed out on several occasions, relatively speaking those wars have been a small part of government spending.

    And also, the blaming of the extension of the current code in 2010 for declining revenue is yet another fallacious statement, since their is so many punitive and malicious things that Obama has been doing to our economy (for one, keeping it down) since his election that the potential positive effects of the extension are swallowed up.

    Comment by zf — July 17, 2011 @ 8:38 pm

  4. Also lurking are the Obamacare-related taxes kicking in already in 2013.

    Comment by TBlumer — July 17, 2011 @ 11:14 pm

  5. Explanation:

    - The AP assumes that the 1951-2000 average fed seizu…er, tax take of 18.1% GDP should have been the floor from 2001 through 2009 (or $1.085 trillion, with $649 billion of that happening in 2009). Never mind that in 2001, 2006 and 2007, fed seizures were above 18.1% of GDP.

    - The assignment of $302 billion of the $702 billion difference between the hypothetical “ideal” of 18.1% of GDP seizure and the actual tax take to Bush (with the other $400 billion assigned to “Obama and Republicans”).

    Comment by steveegg — July 18, 2011 @ 8:34 am

  6. #5, Steve, unless you know better (which of course you might), that’s giving AP an awful lot of credit. I think someone from DNC just handed them a talking point, and what the DNC based their number on is anyone’s guess.

    Also, with proper accounting (i.e., treating $94 billion in Bush admin stimulus payments as outlays instead of as negative receipts), I believe 2008 was also above the 18.1% threshold.

    Comment by TBlumer — July 18, 2011 @ 8:41 am

  7. AP, DNC; what’s the difference? One is the press organ of the other.

    You would be right regarding 2008 – the pre-stimulus revenues were $2.62 trillion, 18.19% of the $14.39 trillion GDP.

    Comment by steveegg — July 18, 2011 @ 9:05 am

  8. I think you’ve included receipts from all sources. Isolate individual income taxes and you should reveal a dip.

    Comment by Alex — July 18, 2011 @ 10:55 am

  9. #8, here are the FY numbers for 2003-2008 per Monthly Treasury Statements (with one necessary correction to 2008) —

    Income taxes:
    - Individual —
    – FY03, $794B
    – FY04, $809B
    – FY05, $927B
    – FY06, $1,044B
    – FY07, $1,163B
    – FY08, $1,240B (after adding back $94B in stimulus payments which were really outlays)

    Corporate –
    – FY03, $132B
    – FY04, $189B
    – FY05, $278B
    – FY06, $374B
    – FY07, $370B
    – FY08, $304B

    The total of All income taxes total went up every year in the series.

    Am I missing something?

    Comment by TBlumer — July 18, 2011 @ 12:09 pm

  10. TB,

    Notice “The Democrat Effect” in corporate FY07, FY08 assuming the Dems would take over Congress and then the Presidency, even before the recession. Business is always ahead of politics.

    Comment by Joe C. — July 18, 2011 @ 1:35 pm

  11. #10 JoeC, Yup, and FY09 and FY10 came in at $138B and $191B, respectively. This year looks like it’s going to be about $190 bil again, still barely half of the highest year under Bush. “Democrat Effect” indeed.

    Comment by TBlumer — July 18, 2011 @ 1:43 pm

  12. For reference:

    2000 – Individual income taxes $1,004 billion, corporate income taxes $207 billion.

    So much for that meme.

    Comment by steveegg — July 18, 2011 @ 2:33 pm

  13. Bush didn’t cut corporate taxes much, so they’re not relevant to the analysis.

    The individual side looks good because you left off the last year of Clinton and the first year of Bush.

    Comment by Alex — July 18, 2011 @ 2:43 pm

  14. #13 Alex, well, that’s because I safely assumed that you were referring to the 2003-2007 graph and my supplemental reference to 2008 when you wrote of what I had “included.” I didn’t include prior years because the 2003 tax cuts were the ones which had the supply-side effects. The 2001 cuts were relatively ineffective because they didn’t have significant direct impact on incentives. But as seen in Comment #12, in 2000, the year before the Clinton Bubble burst in 2001, individual income taxes topped $1 billion before dropping due to the bubble-burst and 9/11.

    Comment by TBlumer — July 18, 2011 @ 3:27 pm

  15. Silly me. I thought you were trying to understand the impact Bush era tax cuts had on our debt. I thought your 44% graph was quite misleading.

    Comment by Alex — July 19, 2011 @ 9:58 pm

  16. Silly me. My posts and graphs do require a bit of reading comprehension. The Bush tax cuts were followed by an increase in annual federal collections of almost $800 billion from 2003-2007 and cumulative increases of $2.7 trillion from 2003-2008. What’s unclear or “misleading” about either?

    Only in AP-Land and Far Lefty-Land (redundant terms, actually) can that be turned into a $1.6 trillion contribution to the deficit.

    Comment by TBlumer — July 19, 2011 @ 10:07 pm

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