A nation's budget deficit that was soon forgotten
Posted: Thursday, November 4, 2010 2:24 pm
By: Con. John Tanner
In 2000 our nation’s finances appeared to be heading in the right direction. For a number of years, we had produced annual budget surpluses and the Congressional Budget Office projected a $3.2 trillion surplus over the next ten years.
In 2001, President Bush and the majority in Congress pressed forward with a number of tax cuts: a reduction in marginal income tax rates, marriage tax penalty relief, temporary indexing of the Alternative Minimum Tax to inflation, and an increased child tax credit. In 2003, Congress and the President accelerated a number of these tax cuts and reduced the rate on dividends and long-term capital gains.
Together, these legislative packages cost approximately $1.7 trillion. Unfortunately, no corresponding cut in government spending or increase in offset revenue accompanied these tax cuts. On Sept. 11, 2001, our nation was attacked by terrorists. Many of the assumptions that had gone into the predicted surplus were no longer valid.
Our nation found itself at war in Afghanistan and soon in Iraq, the cost of protecting our homeland increased, and our economy faltered.
The gap between what our nation was taking in as revenue and spending grew. In 2000, revenue as a percentage of our Gross Domestic Product (GDP) was 21 percent and spending was 18 percent. By 2002, we were spending more than we were collecting; and by 2008, revenues were 18 percent of GDP and spending was 21 percent of GDP.
We had, in fact, created a structural deficit that required us to borrow to make up the difference. Unfortunately, more and more of that borrowing came not from our own citizens, but from foreign countries.
When the 2001 and 2003 tax cuts were enacted, they were scheduled to expire at the end of 2010. Our nation now finds itself in the middle of a fiscal train wreck generated by the structural deficit and exacerbated by government spending many felt was needed to keep the economy from spiraling into depression.
Extending any of the tax cuts will cost more money because deficit projections from official, non-partisan budget score keepers assume that the tax cuts will expire as directed by the current law on the books.