Contrary to some popular beliefs, this country does NOT have a spending problem, but rather, a Revenue problem.

[TheCainer]

Without the Bush and Trump tax cuts, debt as a percentage of the economy would be declining permanently.



Introduction and summary

The need to increase the debt limit1 has focused attention on the size and trajectory of the federal debt. Long-term projections show2 that federal debt as a percentage of the U.S. economy is on a path to grow indefinitely, with increased noninterest spending due to demographic changes such as increasing life expectancy, declining fertility, and decreased immigration and rising health care costs permanently outstripping revenues under projections based on current law. House Republican leaders have used this fact to call for spending cuts,3 but it does not address the true cause of rising debt: Tax cuts initially enacted during Republican trifectas in the past 25 years slashed taxes disproportionately for the wealthy and profitable corporations, severely reducing federal revenues. In fact, relative to earlier projections, spending is down, not up. But revenues are down significantly more. If not for the Bush tax cuts4 and their extensions5—as well as the Trump tax cuts6—revenues would be on track to keep pace with spending indefinitely, and the debt ratio (debt as a percentage of the economy) would be declining. Instead, these tax cuts have added $10 trillion to the debt since their enactment and are responsible for 57 percent of the increase in the debt ratio since 2001, and more than 90 percent of the increase in the debt ratio if the one-time costs of bills responding to COVID-19 and the Great Recession are excluded. Eventually, the tax cuts are projected to grow to more than 100 percent of the increase.

Tax cuts initially enacted during Republican trifectas in the past 25 years slashed taxes disproportionately for the wealthy and profitable corporations, severely reducing federal revenues.

 

[TheCainer]

Fiscal policy in the postwar era

In the 34 years after 1946, the federal debt declined from 106 percent of gross domestic product (GDP) to just 25 percent, despite the federal government’s running deficits in 26 of those years. The debt ratio declined for two reasons. First, the government ran a “primary,” or noninterest, surplus in a large majority of those years. This means that, not counting interest payments, the budget was in surplus. Second, the economic growth rate exceeded the Treasury interest rate in a large majority of those years. These two factors—along with the starting debt ratio—are the levers that control debt ratio sustainability.7 With a primary balance, the growth rate need only match the Treasury interest rate for the debt ratio to be stable. The presence of both primary surpluses and growth rates that exceeded the Treasury interest rate created significant downward pressure on the debt ratio.8

The nation’s fiscal pictured changed in 1981 when President Ronald Reagan enacted the largest tax cut in U.S. history,9 reducing revenues by the equivalent of $19 trillion over a decade in today’s terms. Although Congress raised taxes10 in many of the subsequent years of the Reagan administration to claw back close to half the revenue loss,11 the equivalent of $10 trillion of the president’s 1981 tax cut remained.

These massive tax cuts set off more than a decade of bipartisan efforts to reduce spending and increase revenues, which, along with a booming economy, resulted in budget surpluses at the end of the Clinton administration.

Debt ratio stabilization and its drivers

In the past few decades,12 there has been considerable discussion and rethinking of what constitutes an appropriate level of national debt. At this point, many experts argue13 that the focus should be on whether debt as a percentage of the economy is increasing or is stable over the long run, not on the amount of debt per se. Understanding the drivers of the increase in the debt as a percentage of the economy is critical to this analysis. While one-time costs, such as those made in response to an economic or public health emergency, increase the level of debt, sometimes by large amounts, they do not increase the rate of growth in the debt ratio over the long run. Debt ratio stability is driven by four components: 1) the size of the primary deficit—the deficit exclusive of interest costs—as a percentage of GDP; 2) the starting ratio of debt to GDP (the debt ratio); 3) the rate of economic growth; and 4) the prevailing interest rate on new Treasury securities.14 The cause of the upward trajectory of the debt ratio—a series of massive tax cuts that have been extended with bipartisan support—are largely responsible for recent budget shortfalls.

The underlying fiscal result of Clinton-era policy—having, at the very least, a primary surplus and a declining debt ratio—was projected to persist indefinitely until the Bush tax cuts were made permanent. The Congressional Budget Office’s (CBO’s) last long-term budget outlook before those tax cuts were largely permanently extended15 projected that revenues would be higher than noninterest spending for each of the 65 years that its extended baseline covered.16 In other words, right up until before the Bush tax cuts were made permanent, the CBO was projecting that, even with an aging population and ever-growing health care costs, revenues were nonetheless expected to keep up with program costs. However, in the next year, that was no longer the case.17 As a result of the massive tax cut, the CBO projected that revenues would no longer keep up due to being cut so drastically and, as a result, the debt ratio would rise indefinitely.

 

[TheCainer]

Tax cuts changed the fiscal outlook

As shown in recent analysis, this new change has further cemented itself;18 revenues are now projected to lag significantly behind noninterest spending.19 Of particular interest is that projected levels of both revenues and noninterest spending have decreased: Both are projected to be lower than in the CBO’s projections issued before the permanent extension of the Bush tax cuts. This decrease in noninterest spending is the equivalent of more than $4.5 trillion in lower spending over a decade. But the drop in revenue was three-and-a-half times as large, the equivalent of more than $16 trillion in lower revenues over a decade. Despite the rhetoric of runaway spending, projections of long-term primary spending have decreased, but projections of long-term revenues have decreased vastly more. The United States does not have a high-spending problem; it has a low-tax problem.



Both revenues and spending are lower than earlier projections, meaning low revenues are responsible for persistent primary deficits

2012 and 2019 Congressional Budget Office projections of annual revenues and primary spending as a percentage of gross domestic product

Line graph showing that, in the Congressional Budget Office's 2012 long-term projection, revenues were higher than primary spending, and in 2019, revenues were lower.

202020252030203520402045161820222426%2019 primary spending204922.1%2019 primary spending204922.1%

2012 revenues

2012 primary spending

2019 revenues

2019 primary spending

Hover or click to see values.

Notes: 2019 was the last year in which the Congressional Budget Office produced long-term budget outlooks that contained data without macrodynamic feedback, which are essential to fiscal gap analysis. Therefore, the 2019 outlook is the most recent comparison possible. This analysis assumes that the temporary portions of the Trump tax cuts expire as specified in current law. “Primary spending” means spending excluding interest costs. Primary, not total, deficits are one of the three factors that determine whether debt will be stable as a percentage of gross domestic product.Source: Congressional Budget Office, “The 2012 Long-Term Budget Outlook” (Washington: 2012), available at https://www.cbo.gov/publication/43288; Congressional Budget Office, “The 2019 Long-Term Budget Outlook” (Washington: 2019), available at https://www.cbo.gov/publication/55331.Chart: Center for American Progress



The United States is a low-tax country

Compared with other nations in the Organization for Economic Cooperation and Development (OECD), the United States ranks 32nd out of 38 in revenue as a percentage of GDP.20 But it’s not just that the United States is near the bottom end of revenue; it is nowhere close even to the average. Over the CBO’s 10-year budget window, the United States will collect $26 trillion less in revenues than it would if its revenue as a percentage of GDP were as high as the average OECD nation. When compared to EU nations, that number rises to $36 trillion. (see Figure 2) In contrast, the $289 billion projected revenue increase in the Inflation Reduction Act21 still leaves the United States ranking 32nd out of 38 OECD countries.

 

[TheCainer]

Recent large tax cuts

Analytically, the best way to measure why current projections show what they do is to assess what changed relative to older projections. This means looking at what new laws have been enacted. Increases above current levels that were already on track to happen under current law (and thus were already assumed in the baseline) are, by definition, not responsible for the CBO changing its estimate of long-term projections. This means that rising health care and Social Security costs are not responsible for the increased federal debt; the CBO already assumed them, but the CBO also projected sufficient revenue to keep up with rising health care and Social Security costs.22 In fact, the CBO has dramatically lowered the expected growth in health care costs. As this report has already shown, projections of long-term spending, relative to older projections, have significantly decreased and thus have been responsible for decreased, not increased, debt in the CBO’s outlook. It is tax cuts that have caused the dramatic increase in primary deficit projections.

The Bush tax cuts

The George W. Bush administration, empowered by a trifecta in 2001, enacted sweeping tax cuts that will have cost more than $8 trillion by the end of fiscal year 2023. The tax cuts lowered personal income tax rates across the board, both for labor income and for capital gains, and they significantly increased the untaxed portion of estates and lowered the estate tax rate. These changes were enormously tilted toward the rich and wealthy.23 While these increases were paired with an expansion of the child tax credit and the earned income tax credit, the total package gave significantly greater savings to the wealthy and also made the U.S. tax code significantly more regressive.24 In 2013, a significant majority of the Bush tax cuts were made permanent with bipartisan support, locking in lower tax rates and deep cuts to the estate tax.25 These changes led to a significantly more regressive tax code than existed before the Bush tax cuts were enacted, and one that brought in vastly less revenue.

The Trump tax cuts

President Donald Trump’s signature tax bill,26 enacted when Republicans gained control of the White House and both houses of Congress in 2017, will have cost roughly $1.7 trillion by the end of fiscal year 2023. These tax cuts reduced personal income tax rates and permanently lowered the corporate tax rate, among other changes. Despite being paired with a further expansion of the child tax credit, the 2017 changes also largely benefited the wealthy, once again making the U.S. tax code significantly more regressive.27

Taken together, the Bush tax cuts, their bipartisan extensions, and the Trump tax cuts, have cost $10 trillion since their creation and are responsible for 57 percent of the increase in the debt ratio since then. They are responsible for more than 90 percent of the increase in the debt ratio if you exclude the one-time costs for responding to COVID-19 and the Great Recession. While these one-time costs increased the level of debt, they did nothing to affect the trajectory of the debt ratio. With or without them, the United States would currently have stable debt, albeit potentially at a higher level, despite rising spending.28 In other words, these legislative changes—the Bush and Trump tax cuts—are responsible for more than 90 percent of the change in the trajectory of the debt ratio to date (see Figure 3) and will grow to be responsible for more than 100 percent of the debt ratio increase in the future. They are thus entirely responsible for the fiscal gap—the magnitude of the reduction in the primary deficit needed to stabilize the debt ratio over the long run.29 The current fiscal gap is roughly 2.4 percent of GDP. Thus, maintaining a stable debt-to-GDP ratio over the long run would require the primary deficit as a percentage of GDP to average 2.4 percent less over the period. Because the costs of the Bush tax cuts, their extensions, and the Trump tax cuts—on average, roughly 3.8 percent of GDP over the period30—exceeds the fiscal gap, without them, all else being equal, debt as a percentage of the economy would decline indefinitely.31

 

[TheCainer]

Republican plans for future tax cuts

Recent proposals by some Republicans, whose party now controls the House majority, would further reduce revenues. In fact, the first bill passed in the 118th Congress, which was introduced by Rep. Adrian Smith (R-NE) and passed with only Republican votes,32 would rescind all unobligated portions of the $80 billion in funding for the IRS that was provided in the Inflation Reduction Act.33 The Inflation Reduction Act funding for the IRS is projected to pay for itself several times over through increased enforcement of taxes already owed by the wealthy and by large corporations; the Office of Management and Budget estimated that this funding would raise more than $440 billion over the decade.34

Rep. Vern Buchanan (R-FL) has also introduced legislation to make permanent President Trump’s 2017 tax cuts,35 at a cost of roughly $2.6 trillion over the next decade.



Conclusion

A series of massive, permanent tax cuts have created large federal budget primary shortfalls and continue to exert upward pressure on the debt ratio. In other words, the current fiscal gap—the growing debt as a percentage of the economy—stems from legislation that cut taxes, disproportionately for the very rich. While it is true that the Great Recession and legislation to fight it, along with the costs of responding to the health and economic effects of COVID-19, pushed the level of debt higher, these costs were temporary and did not change the trajectory of the debt ratio. If Congress wants to decrease deficits, it should look first toward reversing tax cuts that largely benefited the wealthy, which were responsible for the United States’ current fiscal outlook.

Tax Cuts Are Primarily Responsible for the Increasing Debt Ratio

Without the Bush and Trump tax cuts, debt as a percentage of the economy would be declining permanently.

www.americanprogress.org

 

[EvolutionDenier]

I had it read to me backwards and I'm all like, "Whu-whu-whuuuuutttt?!?!

 

[tarheelbybirth]

Nothing really new here. The GOP sold the morans on the idea that they could have all their services while not paying for them.

"We'll cut services for THOSE people."

Then the GOP tells them:

"If we cut taxes for the REALLY rich people, they'll take care of ever'body."

Those idiots haven't yet tumbled to the bamboozle. Likely they never will. That's why they're morans.

And there are at least 70 million of them.

 

[hawkdave007]

To paraphrase President Obama, we need to "eat our peas".

 

[joelbc1]

Nothing really new here. The GOP sold the morans on the idea that they could have all their services while not paying for them.

"We'll cut services for THOSE people."

Then the GOP tells them:

"If we cut taxes for the REALLY rich people, they'll take care of ever'body."

Those idiots haven't yet tumbled to the bamboozle. Likely they never will. That's why they're morans.

And there are at least 70 million of them.

Republicans have been making this promise ever since the days of FDR and social security...it is in the GOP DNA.
Any Democrat (like me) understands this from the get-go. Ronald Reagan was the break-through for these Republicans. Reagan and his folly economic theory (trickle down economics) swayed Americans into a faux economics that can only survive by feeding itself with continual tax cuts for the wealthy and increasing national debts.

 

[tarheelbybirth]

Republicans have been making this promise ever since the days of FDR and social security...it is in the GOP DNA.
Any Democrat (like me) understands this from the get-go. Ronald Reagan was the break-through for these Republicans. Reagan and his folly economic theory (trickle down economics) swayed Americans into a faux economics that can only survive by feeding itself with continual tax cuts for the wealthy and increasing national debts.

The Laugher Curve is the biggest swindle ever sold to the American people. It's how people make a living selling "that last little bit of asphalt in the truck" to people who want a new driveway cheap.

And the learning curve of the GOP voter is sooooo f'n flat that they buy it over and over and over and over...

 

[Here_4_a_Day]

Marxism is alive and well here on the HROT.....

 

[Slappy Pappy]

Simplest thing to do to fight the deficit is to pass a law restoring tax rates to 1999 levels of Clinton Administration.

 

[TheCainer]

Simplest thing to do to fight the deficit is to pass a law restoring tax rates to 1999 levels of Clinton Administration.

To hell with that.

Let's go back to the top 1950's (Eisenhower) tax rate of 92%.

That works for me.

 

[MikeyHawk]

Outlays as a % GDP first went over 20%, excluding WW2, in 1975. Stayed in the 20-22 range until 1996, when it dropped under 20 until the financial issues in 2008/2009. Settled in around 20-21 until the pandemic in 2020.
WH is projecting it to stay around 25% of GDP for the next several years. Spending as a % of GDP will be at the highest levels in its history going forward.

Receipts have consistently been in the 15 - 18 % range for most of the years since 1975. Obviously, there is not enough revenue to cover the expenditures.

Would an extra $1.4 Trillion in receipts to get to 24% of GDP. Seems that increasing the payroll and medicare tax would be useful, which would be a challenge to get passed.

Receipts have definitely not been enough to cover outlays, but, to only blame it on receipts and not an increase in spending is not based in the numbers

 

[MikeyHawk]

Simplest thing to do to fight the deficit is to pass a law restoring tax rates to 1999 levels of Clinton Administration.

How much would that increase receipts?

 

[tarheelbybirth]

Simplest thing to do to fight the deficit is to pass a law restoring tax rates to 1999 levels of Clinton Administration.

The IRS will need to be beefed up far beyond the 85,000 new personnel over ten years they were promised. They're going to need a Marshall Plan level investment in infrastructure.

 

[Here_4_a_Day]

It's expensive to import 10's of millions of illegal trash to vote D.

 

[KFsdisciple]

So revenues went down but spending didnt...sounds really irresponsible

 

[LuteHawk]

A balanced budget is necessary for the federal government.
We cannot afford to spend more money that we get in taxes.

The average American family lives on a balanced budget.
They cannot spend more money than they earn.

Bottom Line: We need fiscal sanity in Congress . They need
to understand the need for a balanced budget.

 

[tumorboy]

The War on Terror being put on the credit card was a huge problem as well. The American should always have to have skin in the game when boots are on the ground. The whole deficits don't matter has been ok. As long the non Marxist GOP control the White House.

 

[tumorboy]

So revenues went down but spending didnt...sounds really irresponsible

But I thought economic growth was going to magically pay for the tax cuts. . Personally both sides of the ledger need addressed. Taxes need raised on the folks who received the cuts. And spending needs reduced as well.

 

[Huey Grey]

Didn't Romney want to slash the capital gains down to something like 5%? That is an insane funneling of money to the top. And yet so many working class schlubs celebrated it while they would have gotten nothing.

 

[binsfeldcyhawk2]

Simplest thing to do to fight the deficit is to pass a law restoring tax rates to 1999 levels of Clinton Administration.

Why didn’t the D’s do that in 2021-22?

 

[Huey Grey]

A balanced budget is necessary for the federal government.
We cannot afford to spend more money that we get in taxes.

The average American family lives on a balanced budget.
They cannot spend more money than they earn.

Bottom Line: We need fiscal sanity in Congress . They need
to understand the need for a balanced budget.

Why would your average family get a lower paying job and start heavily giving to rich people if they were struggling financially? Because that is essentially what we have here.

 

[Here_4_a_Day]

Didn't Romney want to slash the capital gains down to something like 5%? That is an insane funneling of money to the top. And yet so many working class schlubs celebrated it while they would have gotten nothing.

You don't have to be rich to oppose an anti-American, marxist ideology.

 

[EvolutionDenier]

The IRS will need to be beefed up far beyond the 85,000 new personnel over ten years they were promised. They're going to need a Marshall Plan level investment in infrastructure.

And moar gunz!

 

[Huey Grey]

You don't have to be rich to oppose an anti-American, marxist ideology.

You have to be pretty stupid to support a system that funnels all the money to the top.

 

[Here_4_a_Day]

You have to be pretty stupid to support a system that funnels all the money to the top.

Like where? lol You have to be stupid to keep feeding the oligarch known as the bloated federal gov.

 

[Scruddy]

I refuse to believe the problems in our country are the result of not giving the government enough of our money.

 

[Huey Grey]

Like where? lol You have to be stupid to keep feeding the oligarch known as the bloated federal gov.

So you don't believe in roads or bridges, the military, cops or firefighters?

 

[tumorboy]

You don't have to be rich to oppose an anti-American, marxist ideology.

You're supporting feudalism. That's a really bad idealogy as well.

 

[Here_4_a_Day]

So you don't believe in roads or bridges, the military, cops or firefighters?

Did I say that? Stop being obtuse...if possible. Most roads and bridges and nearly all cops and firefighters are not funded through federal income tax. You know that.

 

[Here_4_a_Day]

You're supporting feudalism. That's a really bad idealogy as well.

Yes, that's totally it...America was founded on feudalism.

 

[Moral]

Why didn’t the D’s do that in 2021-22?

Because of neoliberals and a couple of "centrists." The system belongs to the most successful of capitalists, not the masses.

 

[Huey Grey]

Did I say that? Stop being obtuse...if possible. Most roads and bridges and nearly all cops and firefighters are not funded through federal income tax. You know that.

So you're ok with increasing local and state taxes to pay for these things then?

 

[HawkeyeHitman]

You have to be pretty stupid to support a system that funnels all the money to the top.

Get a job. You don’t deserve anything.

 

[Huey Grey]

Get a job. You don’t deserve anything.

But people do deserve things. Simply telling people to get another job so that rich people can keep increasing their wealth is counterproductive to those already working too much. Why not simply stop giving rich people everything?

 

[Tom Paris]

Recent large tax cuts

Analytically, the best way to measure why current projections show what they do is to assess what changed relative to older projections. This means looking at what new laws have been enacted. Increases above current levels that were already on track to happen under current law (and thus were already assumed in the baseline) are, by definition, not responsible for the CBO changing its estimate of long-term projections. This means that rising health care and Social Security costs are not responsible for the increased federal debt; the CBO already assumed them, but the CBO also projected sufficient revenue to keep up with rising health care and Social Security costs.22 In fact, the CBO has dramatically lowered the expected growth in health care costs. As this report has already shown, projections of long-term spending, relative to older projections, have significantly decreased and thus have been responsible for decreased, not increased, debt in the CBO’s outlook. It is tax cuts that have caused the dramatic increase in primary deficit projections.

The Bush tax cuts

The George W. Bush administration, empowered by a trifecta in 2001, enacted sweeping tax cuts that will have cost more than $8 trillion by the end of fiscal year 2023. The tax cuts lowered personal income tax rates across the board, both for labor income and for capital gains, and they significantly increased the untaxed portion of estates and lowered the estate tax rate. These changes were enormously tilted toward the rich and wealthy.23 While these increases were paired with an expansion of the child tax credit and the earned income tax credit, the total package gave significantly greater savings to the wealthy and also made the U.S. tax code significantly more regressive.24 In 2013, a significant majority of the Bush tax cuts were made permanent with bipartisan support, locking in lower tax rates and deep cuts to the estate tax.25 These changes led to a significantly more regressive tax code than existed before the Bush tax cuts were enacted, and one that brought in vastly less revenue.

The Trump tax cuts

President Donald Trump’s signature tax bill,26 enacted when Republicans gained control of the White House and both houses of Congress in 2017, will have cost roughly $1.7 trillion by the end of fiscal year 2023. These tax cuts reduced personal income tax rates and permanently lowered the corporate tax rate, among other changes. Despite being paired with a further expansion of the child tax credit, the 2017 changes also largely benefited the wealthy, once again making the U.S. tax code significantly more regressive.27

Taken together, the Bush tax cuts, their bipartisan extensions, and the Trump tax cuts, have cost $10 trillion since their creation and are responsible for 57 percent of the increase in the debt ratio since then. They are responsible for more than 90 percent of the increase in the debt ratio if you exclude the one-time costs for responding to COVID-19 and the Great Recession. While these one-time costs increased the level of debt, they did nothing to affect the trajectory of the debt ratio. With or without them, the United States would currently have stable debt, albeit potentially at a higher level, despite rising spending.28 In other words, these legislative changes—the Bush and Trump tax cuts—are responsible for more than 90 percent of the change in the trajectory of the debt ratio to date (see Figure 3) and will grow to be responsible for more than 100 percent of the debt ratio increase in the future. They are thus entirely responsible for the fiscal gap—the magnitude of the reduction in the primary deficit needed to stabilize the debt ratio over the long run.29 The current fiscal gap is roughly 2.4 percent of GDP. Thus, maintaining a stable debt-to-GDP ratio over the long run would require the primary deficit as a percentage of GDP to average 2.4 percent less over the period. Because the costs of the Bush tax cuts, their extensions, and the Trump tax cuts—on average, roughly 3.8 percent of GDP over the period30—exceeds the fiscal gap, without them, all else being equal, debt as a percentage of the economy would decline indefinitely.31

Tax cuts that highly benefited the wealthy and did nothing for everybody else. I’m sure board Republicans won’t accept any of these obvious facts and continue to side with the people who cause the country financial damage.

 

[tumorboy]

Yes, that's totally it...America was founded on feudalism.

The current system is giving too much power to the upper class. To quote Jon Stewart there is entire wall of influence between the American people and their government. That wall is there to keep the in flow of cheap labor coming despite how it affects the lower class. It's also there to make prisons get more funding than let's say primary education.

 

[Tom Paris]

Didn't Romney want to slash the capital gains down to something like 5%? That is an insane funneling of money to the top. And yet so many working class schlubs celebrated it while they would have gotten nothing.

But don’t tell them they vote against their own interests.