The Birth Tax, Revisited

A friend posed an interesting question to me last week: exactly how much of the astonishing change in the finances of the US government is due to Bush, and how much is due to forces outside of his control? Put another way, exactly what is the magnitude of the tax increase that Bush has deliberately levied on future Americans?

The astonishing collapse of this nation’s government finances over the past three years is well known, and was discussed in some detail in this earlier post by AB. In January of 2001 the US government was expected to run a total surplus of $5 trillion between 2001 and 2010. But now our best guess is that the US will actually run a total deficit of $2.2 trillion through the end of the decade.

It turns out that it is possible to estimate exactly how much of the change is due to which factor, using some CBO data that I referred to in my earlier post about Cheney’s lies on MTP. I spent some time yesterday doing the necessary calculations.

Part of this change is nobody’s fault. The estimate from early 2001 was just plain wrong, in two ways: it relied on overly optimistic revenue projections, and didn’t count on a long and lingering economic downturn. And of course, another part of the discrepancy is due to expenses related to 9/11, which also can’t be blamed on Bush.

However, once additional interest expenses are taken into account, and assuming that the tax cuts currently set to expire are extended (as both President Bush and the Congress say they would like to do), deliberate decisions by Bush and Congressional Republicans are the source for $4.1 trillion of the change in the government’s finances through 2010. Here’s the breakdown:

Total discrepancy between 1/01 estimate and 8/03 estimate: $7.2 trillion

Change due to earlier misestimation + effects of recession: $2.6 trillion

Change due to higher spending for 9/11-related expenses: $0.4 trillion

Change due to higher spending unrelated to 9/11: $1.6 trillion

Change due tax cuts in 2001, 2002, and 2003: $2.5 trillion

The graph below shows the total change in the US government budget forecasts, decomposed into the four elements given above. If you assume that Bush and the Republicans had no control over the top two items, you still must conclude that they deliberately caused the majority of the change in Americans’ future tax burden.

One interesting thing to note (and pointed out by AB in the earlier post about the birth tax) is that it is not just the tax cuts that have created the shortfall. Government spending has also been growing at breakneck speed. Increased spending for things unrelated to 9/11 will total roughly $1.6 trillion by the end of the decade. As noted by the Cato Institute, President Bush must share the blame for this. He has never vetoed a spending bill while presiding over double-digit increases in spending every year of his term. Compare this to President Reagan, who vetoed 22 spending bills during his first 3 years in office.

Look at it another way. What would budget deficits be if Clinton-era policies were still in place? The following graph shows three different scenarios: Clinton-era rates on both taxes and spending (though spending is augmented by 9/11 expenses); Clinton-era taxes but Bush spending levels; and Bush taxes and spending.

Hopefully this should put to rest the question of whether the terrible state of the US’s long-run finances is due to Bush, or to bad luck. It is unequivocally not due to bad luck.