Blaming Obama for George W. Bush’s Policies

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July 26, 2011, 6:00 am89 Comments

Are the Bush Tax Cuts the Root of Our Fiscal

Problem?

e Bartlett: Are the Bush Tax Cuts the Root of Our Fiscal Problem? ... http://economix.blogs.nytimes.com/2011/07/26/are-the-bush-tax-

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ByBRUCE BARTLETT

Bruce Bartlettheld senior policy roles in the administrations of Ronald Reagan and George H.W. Bush and

served on the staffs of Representatives Jack Kemp and Ron Paul.

Whether revenue should play any role in deficit reduction is at the root of the fiscal impasse betweenCongressional Republicans and President Obama. One factor underlying the hard-line Republican position

that taxes must not be increased by even $1 is their assertion that the Bush tax cuts played no role in creating

our deficit problem.

Todays Economist

Perspectives from expert contributors.

In a previous post, I noted that federal taxes as a share ofgross domestic product were at their lowest level in

generations. The Congressional Budget Office expects revenue to be just 14.8 percent of G.D.P. this year; thelast year it was lower was 1950, when revenue amounted to 14.4 percent of G.D.P.

But revenue has been below 15 percent of G.D.P. since 2009, and the last time we had three years in a row

when revenue as a share of G.D.P. was that low was 1941 to 1943.

Revenue has averaged 18 percent of G.D.P. since 1970 and a little more than that in the postwar era. At a

similar stage in previous business cycles, two years past the trough, revenue was considerably higher: 18

percent of G.D.P. in 1977 after the 1973-75 recession; 17.3 percent of G.D.P. in 1984 after the 1981-82

recession, and 17.5 percent of G.D.P. in 1993 after the 1990-91 recession. Revenue was markedly lower,

however, at this point after the 2001 recession and was just 16.2 percent of G.D.P. in 2003.

The reason, of course, is that taxes were cut in 2001, 2002, 2003, 2004 and 2006.

It would have been one thing if the Bush tax cuts had at least bought the country a higher rate of economic

growth, even temporarily. They did not. Real G.D.P. growth peaked at just 3.6 percent in 2004 before fading

rapidly. Even before the crisis hit, real G.D.P. was growing less than 2 percent a year.

By contrast, after the 1982 and 1993 tax increases, growth was much more robust. Real G.D.P. rose 7.2

percent in 1984 and continued to rise at more than 3 percent a year for the balance of the 1980s.

Real G.D.P. growth was 4.1 percent in 1994 despite widespread predictions by opponents of the 1993 tax

increase that it would bring on another recession. Real growth averaged 4 percent for the balance of the1990s. By contrast, real G.D.P. growth in the nonrecession years of the 2000s averaged just 2.7 percent a year

barely above the postwar average.

Few people remember that a major justification for the 2001 tax cut was to intentionally slash the budget

surplus. President Bush said this repeatedly during the 2000 campaign, and it was reiterated in his February

2001 budget document.

In this regard, at least, the Bush-era tax cuts were highly successful. According to a recent C.B.O. report, they

reduced revenue by at least $2.9 trillion below what it otherwise would have been between 2001 and 2011.


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Slower-than-expected growth reduced revenue by another $3.5 trillion.

Spending was $5.6 trillion higher than the C.B.O. anticipated for a total fiscal turnaround of $12 trillion. That

is how a $6 trillion projected surplus turned into a cumulative deficit of $6 trillion.

Congressional Budget Office

These figures are conservative insofar as revenue is concerned, because the higher interest payments required

by the deficits created by the Bush tax cuts are allocated to spending. If one allocates the interest cost

proportionally, the Bush tax cuts were responsible for increasing the debt by $3.2 trillion 27 percent of the

fiscal deterioration since 2001.

These facts notwithstanding, it has become a Republican talking point that the Bush tax cuts did not, in fact,

reduce revenue at all something the Bush administration itself never asserted.

Last year, Mitch McConnell of Kentucky, the Senate minority leader, said: Theres no evidence whatsoever

that the Bush tax cuts actually diminished revenue. They increased revenue because of the vibrancy of these

tax cuts in the economy.

On June 10, former Minnesota Gov. Tim Pawlentysaid, Keep in mind, whether it be the Bush tax cuts, the

Reagan tax cuts or other tax cuts, they always produce an increase in revenue.

On July 10, Senator Jeff Sessions of Alabama said of the Bush tax cuts, The revenue went up every single

year after those tax cuts were put in.

And on July 15, Representative Trent Franks of Arizona said, Even the much-maligned Bush tax cuts

brought in an additional $100 billion a year to government coffers.

It is hard to know where these totally erroneous ideas come from. Federal revenue fell in 2001 from 2000,

again in 2002 from 2001 and again in 2003 from 2002. Revenue did not get back to its 2000 level until 2005.

More important, revenue as a share of G.D.P. was lower every year of the Bush presidency than it was in

2000.


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Congressional Budget Office

What will happen at the end of next year when the Bush tax cuts expire is already a matter of intense budget

negotiations. Perhaps the whole point of the apparent Republican disinformation effort to deny that the Bush

tax cuts reduced federal revenue is to make the reverse argument next year allowing them to expire will

not raise revenue.

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AUGUST 14, 2012, 6:00 AM

Blaming Obama for George W. Bushs Policies

ByBRUCE BARTLETT

Bruce Bartlettheld senior policy roles in the Reagan and George H.W. Bush administrations

and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of "The

Benefit and the Burden: Tax Reform - Why We Need It and What It Will Take."

Although it was quickly overshadowed by his choice of Representative Paul D. Ryan of

Wisconsin as his running mate, Mitt Romney released an important document last week by his

principal economic advisers that deserves more attention than it got. It is an audacious attempt

to blame Barack Obama for the economic mistakes of George W. Bush and Republicans in

Congress.

The document is attributed to economists Glenn Hubbard of Columbia, N. Gregory Mankiw of

Harvard, John B. Taylor of Stanford and Kevin Hassett of the American Enterprise Institute.

Professors Hubbard and Mankiw each chaired the Council of Economic Advisers under

President Bush, while Professor Taylor served him as under secretary for international affairs at

the Treasury Department. Mr. Hassett is co-author of the book, "Dow 36,000," published in

1999.

Much of the Romney paper is taken up with reviewing the poor economic recovery, which is

undeniable. Reading it, however, one is left with the impression that the recession occurred onPresident Obama's watch because of policies he is responsible for.

Just to be clear, the National Bureau of Economic Research, the private research group that

determines the starting and ending points of recessions, says the latest economic downturn

began in December 2007 and ended in June 2009.

The report points to various causes of the recession as if they all just happened without the

responsibility of one party or administration. As the report says, "No single party or

administration is responsible for structural headwinds to growth."

That is probably true. But what about cyclical changes in growth and unemployment? These are

the ups and downs in the economy that occur around the trend rate of growth, which is

determined by structural factors, as the report correctly asserts.

Factors affecting the business cycle are necessarily short-term in nature. They include Federal

Reserve policy; international capital flows; industry-specific policies such as those affecting

housing; fiscal policy and many others.

Such factors must necessarily have occurred after the previous recession, which ended in

e Bartlett: Blaming Obama for George W. Bush's Policies - NYTime... http://economix.blogs.nytimes.com/2012/08/14/blaming-obama-

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November 2001, according to the N.B.E.R. That's the nature of business-cycle analysis; once a

previous recession ends, the cyclical factors that gave rise to it are assumed to have been purged.

The next recession will necessarily result from those factors that postdate the previous

recession.

So whatever caused the 2007-9 recession had to have resulted from policies that the Bush

administration was responsible for - either by initiating them or failing to act against them.

Space prohibits a full discussion of these issues, but certainly one factor had to be the

squandering of budget surpluses that resulted from the policies of the Bill Clinton

administration and their replacement by huge deficits under President Bush.

Mr. Bush inherited a budget surplus of $236 billion from Mr. Clinton in 2000, which fell to

$128 billion in 2001. By 2002, the federal government ran a budget deficit of $158 billion, which

rose to $377 billion in 2003, and $413 billion in 2004. The deficit fell to $318 billion in 2005,

$248 billion in 2006, and $161 billion in 2007, then shot up to $459 billion in 2008.

It should be noted as well that the fiscal 2009 budget was submitted to Congress by Mr. Bush in

January 2008 and took effect on Oct. 1 of that year - almost four months before President

Obama took office.

Thus the government was running historically large budget deficits long after the end of the

2001 recession. As I have previously documented, these deficits resulted to a large extent from

legislated tax cuts during the Bush years.

It is also important to note, though one will not find it in the economists' report, that much of

the legislated increase in the deficit under President Obama resulted from tax cuts. According to

the Congressional Budget Office, tax cuts in the American Recovery and Reinvestment Act of

2009 reduced revenues by $253 billion between 2009 and 2011 - about a third of the budgetarycost of the stimulus package.

Further tax cuts agreed to by President Obama in 2010 added another $354 billion to the deficit

in 2011 and a similar amount this year. Thus about $1 trillion of the deficit since 2009 came

from tax cuts.

Most economists believe that running large deficits during cyclical upturns is a bad idea because

they overstimulate the economy when it's not needed and thus sow the seeds of economic

imbalances that lead to subsequent recessions. One can argue that George W. Bush's budgetary

profligacy was a major cause of the 2007-9 recession - the longest and deepest of the postwarera.

Even if one isn't willing to go that far, it is apparent that had Mr. Bush reduced budget deficits

rather than enlarging them through tax cuts and spending increases for wars, pork-barrel

projects and a new entitlement program (Medicare Part D), the federal government would have

had more fiscal ammunition available to fight the recession that President Obama inherited

from President Bush.

Because of the large deficits Mr. Bush bequeathed Mr. Obama - on Jan. 8, 2009, the C.B.O.


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projected a deficit for the year of $1.3 trillion that didn't include any Obama policies - Congress

was deeply reluctant to enact a stimulus larger than $787 billion, even though President

Obama's economic advisers thought that one at least twice as large was necessary to turn the

economy around. The opposition of every Republican to the 2009 stimulus was a major factor in

its inadequate size.

By way of analogy, suppose you go to your doctor with an illness. He correctly diagnoses it and

prescribes the right medicine, but for some reason you are given a dosage only half as large asrequired. The medicine was enough to improve your condition, but not enough to cure you. You

remain sick although you feel better and will remain so until you finally get a full dosage of the

proper medicine or your body is able to cure itself, which might take years.

Note that in this analogy the medicine was properly prescribed; only the dosage was wrong. It

would be incorrect to blame the medicine because you are still sick.

The Republican economists nevertheless blame the medicine itself for the failure of the

economy to respond to President Obama's prescription.

But it was Republican policies during the Bush administration that brought on the sickness and

Republicans in Congress who have denied the economy an adequate dosage of the cure. Now

they want to implicitly blame President Obama for causing the recession and the failure of

stimulus to fix the problem, asserting that fiscal stimulus is per se ineffective.

There is a word for this: chutzpah.


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