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Blame tax cuts for Washington’s budget woes, new report says

Updated Mar 27, 2023, 11:17am EDT
politics
REUTERS/Kevin Lamarque
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With Congress awkwardly shuffling toward a high-risk showdown over the debt ceiling later this year, a leading liberal think tank is releasing a new report today that looks at the age-old question of whether tax cuts or rising spending are mostly responsible for Washington’s budget woes.

Its answer? Blame the tax cuts.

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Were it not for tax slashing legislation passed under Presidents George W. Bush and Donald Trump, federal revenues would currently “be on track to keep pace with spending indefinitely,” the Center for American Progress finds. (The group shared its report early with Semafor).

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The national debt would still be higher than it was two decades ago, in part thanks to the emergency legislation passed in response to the Great Recession and coronavirus crisis. But the debt’s size as a share of the economy would be shrinking had lawmakers not pushed through tax cuts — a key sign of good fiscal health. Economists typically argue that countries are on a sustainable long-term budget path if their ratio of debt-to-GDP is stable or falling.

“This report shows that tax cuts, not spending increases, are the cause of ever-increasing debt,” Bobby Kogan, CAP’s director of federal budget policy and the report’s author, told Semafor. “As recently as 2000, if Congress had just stayed the course, debt would be stable indefinitely. All we had to do was not enact tax cuts.”

Kogan reached his conclusion by looking back at old Congressional Budget Office projections from immediately before the Bush tax cuts were enacted. At the time, Capitol Hill’s number crunchers expected that the federal government’s revenues would keep pace with its spending. That hasn’t happened, even though spending has come in lower than projected over time. The main problem: Tax collections have fallen even more compared to projections thanks to the Bush and Trump tax cuts, which piled more than $10 trillion to the national debt since 2001, the last time the US had a cash surplus on hand.

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While they provide an interesting look at the origins of Washington’s red ink, the report’s findings might not budge the consensus among professional budget hawks that the government has both a tax and spending problem. “Numerous fiscally irresponsible policies got us to this point, and only a serious look at both the tax and spending sides of the equation will get us out,” Shai Akabas, director of economic policy at the Bipartisan Policy Center told Semafor.

Back in Congress, meanwhile, Republicans are already signaling they will seek to extend the Trump tax cuts as many provisions benefiting individuals expire in 2025. That may complicate GOP promises to balance the budget: The Congressional Budget Office recently projected that eliminating the rest of the federal budget still wouldn’t be enough if Medicare, Social Security, defense and veterans’ benefits are kept off the table.

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