What Happened to the Surplus?
Back in 2000 and 2001 everybody was predicting budget surpluses for years to come. Bush and Gore argued over how to “spend” it. Now the convetional wisdom is that the surupluses disappeared in an orgy of tax cuts by the Bush Administration for the rich. Greg Mankiw points out that this is not entirely accurate.
So the idea that the tax cuts were to sole “culprit” in turning the surplus into deficits is not really accurate. To be sure, they were a contributing factor.
Also, there was that little issue of the recession. In the above graph, that falls under the part called Tech (Technical) Adjustments and Revised Economic Assumptions. That alone “cost” $2.5 trillion, and while it is sometimes fashionable to blame the recession on Bush, the reality is that the seeds of recession had germinated during 2000, well before Bush was President.
Now this doesn’t mean that Bush is “off the hook”. There were indeed large increases in discretionary spending (using the above chart and back of the envelop calculations) of about $2.7 trillion dollars. Add in the tax cuts, and we are talking $4.1 trillion. So if there were no tax cuts and no increases in discretionary spending we’d still have a surplus…a small one, but no deficits.
Mankiw does bring up the issue of dynamic analysis of the tax cuts and how positive feedbacks might have lowered the impact of the tax cuts. Still, I think it is fair to say that the tax cuts did play a significant role in the current bleak fiscal outlook. But they are not the entire story by a long shot.