The Bush Administration and its allies, including the Wall Street Journal, have been going around proclaiming that Bush's tax cuts are responsible for the better than predicted federal budget deficit numbers of late.
So let's get some facts straight.
First, the Bush tax cuts, the Bush war in Iraq and GOP spending on Bridges to Nowhere and other earmarks sought out by the K Street crowd of Abramoff et al. let to record budget deficits after Bush inherited a budget surplus when he took office.
Second, Democrats, too, were pushing for a tax cut in 2001, albeit a more modest one that would be distributed more evenly to middle and lower class taxpayers as a means to stimulate spending and the economoy.
What we got was too big a tax cut, skewed too much to the wealthiest taxpayers, which resulted in a ballooning deficit in a time of war.
Since 2002 the economy has grown, at first anemically, and now more robustly. Is that because of Bush's tax cuts? No. After the 1991-92 recession, Clinton persuaded Congress to restore taxes on wealthier taxpayers to address the ballooning deficits under Bush I. Over the next eight years we had an unprecedented economic expansion. Was that "because" of Clinton's tax increase? No, not really, although bringing a measure of fiscal sanity to the federal budget did help stabilize bond markets and reduce long term interest rates, which in turn helped the economy expand.
But what was really at work after 1992 was the economic cycle. Just as after previous recessions, we had an economic expansion.
When the economy expands, tax revenues expand as well. When economic expansion is rapid, as it often is in the third and fourth years of an expansion cycle, tax revenues grow faster than spending and the deficit is reduced. That's what happened in the 1990's and that's what's happening now.
Bush's tax cuts have little to do with it (Bush's tax cuts probably helped the economy a bit, but there's no evidence that they somehow produced more revenue than they cost.) As one refreshingly truthful former Bush White House economist, now at the American Enterprise Institute, put it: "Federal revenue is lower today than it would have been without the tax cuts. There's really no dispute among economists about that."
If Democrats take over Congress and allow some of the Bush tax cuts to lapse (particularly those benefitting the wealthiest 5% of Americans), will the economy collapse? Hardly. Indeed, if Congress can get its fiscal house back in order, producing a modest surplus, bond markets are likely to again respond with lower rates. As it is, we're still spending about 8% of the federal budget on debt service on the multi-trillion dollar federal debt.
Furthermore, absent saner fiscal actions by Congress, the recently shrinking national debt will soon balloon again.
Yes, there is a time for tax cuts (properly targeted to the middle)--when the economy is in recession. But money doesn't grow on trees; we're not in recession now and extending the Bush tax cuts makes no sense. Of course, we still need Congress to exercise fiscal restraint--something the Republican Congress has shown its no better at than Democrats.