Deficits and Debt and Tax Cuts
Federal Reserve Board Chairman Alan Greenspan doesn't think that tax cuts are needed now and warns about the danger of growing budget deficits. (See this New York Times article). Recently, the International Monetary Fund issued its economic report that advised the US against passing more tax cuts. Hundreds of economists, including a number of Nobel Laureates, oppose tax cuts. According to a number of polls, most Americans don't want more tax cuts, either.
There are a variety of reasons for this marked lack of enthusiasm (by everyone but the President and Congress) for tax cuts including:
- Anxiety about the effects of the radical cuts in services that are being made daily as states try to balance their budgets.
- No credible evidence that the tax cuts will stimulate economic growth, especially when many states are being forced to raise taxes, and absolutely zero chance that they would do so to a degree that would offset the revenue loss.
- Worry about the future of Social Security, Medicare and skyrocketing health care costs as we face a big increase in the number of older Americans.
- The rising national debt as deficits continue each year for the next decade, at least.
- Increasing unemployment and a shaky economic forecast.
- Concerns with the cost of the war, strengthening our own security, and being prepared.
There also seems to be a growing awareness that tax cuts are government spending-with even costlier and long-term effects than other government spending on services and programs. Tax cuts are not free, not guaranteed to improve the economy, and do not lift all boats (especially not tax cuts on investments and capital gains).
Nevertheless, Congress continues to march blithely forward to pass tax cuts-government spending primarily for the benefit of corporations and the wealthiest. There are only a few lone voices of sense. Against enormous pressure, even Republican Senators Olympia Snowe (ME) and George Vonovich did their best to lower the cost of the "required" tax cut from $550 to $350. (Only given the bizarre scenario of a Congress that is completely oblivious to what people want would that even seem
notable.) Rep. Dick Gephardt (D-MO), who is running for President, has boldly called for rescinding the 2001 tax cuts in order to concentrate on providing health insurance for all Americans. Regardless of the merits of his plan, if most Republicans are willing to deficit spend on tax cuts for the wealthy, we think it's about time Democrats start championing deficit spending on something that would do low- and ordinary Americans some good.
Sinking to New Debts
While a rising national debt may be the least of our problems, there are reasons to pay attention, especially when the cause is tax cuts that benefit corporations (already not paying their fair share) and the wealthy (who are more able to replace public services with private). Deficits have long been used as the rationale for curtailing spending, and will continue to be an ideological tool that makes it harder and harder to successfully advocate for meeting the needs of low- and middle-income Americans. Those who want to shrink government are doing a great job-they just keep cutting taxes and creating budget deficits that raise the national debt. Then they argue that we can't afford to pay for health care or housing or protecting the environment or regulating-we've got to pay down the debt. This is probably the worst thing about the rising national debt-conservatives have been astoundingly successful in using it for their purposes.
However, it is true that we pay interest on the national debt, and as it rises, so do interest costs (a fact which anyone with a credit card soon figures out). That is money that could be put to better uses, like meeting our Social Security retirement obligations during the next few decades.
While the federal budget doesn't need to be balanced-it can go into debt, unlike the states, we do have a thing called the "debt limit." Congress set a limit on the total dollar amount of securities that the Treasury is allowed to have outstanding at any time. Congress must vote to increase the debt limit. Last June, less than a year ago, the limit was raised by $450 billion--from $5.95 trillion to its current $6.4 trillion. With the U.S. Treasury warning that the $6.4 trillion debt ceiling will be broached by the end of this month, another Congressional vote to raise the debt limit yet again will be required. The House has already approved a $1 trillion increase, after unsuccessfully proposing to just automatically enact a debt limit hike in connection with whatever budget it passes, i.e., "however much we want to spend, the debt limit will go up accordingly." The Senate may not be as generous, although it is certain the debt limit will be raised.
While the President frequently manages to say with a straight face that his tax cuts have nothing to do with the deficits/national debt (and often seems to completely defy logic and infer that the tax cuts will magically return us to surpluses), there should be no doubt that the tax cuts are a big reason for deficits -- not the only reason, but a big factor. According to a recent Center on Budget and Policy Priorities report, using Congressional Budget Office data, nearly one-third of the budget deterioration since 2000 has been caused by tax cuts enacted in the last two years. The CBO data also show that the share of the budget deterioration that is attributable to the tax cuts continues to get larger and larger each year over the course of the decade.
It should be embarrassing to vote to increase the debt limit in order to pay for trillions of dollars worth of tax cuts for corporations and the wealthy, even by a "little bitty" amount, no more than those "little bitty" billions that President Bush wants in tax cuts to which Congress seems unable to just say "No."