LINDA WERTHEIMER, HOST:
The battle over the federal deficit goes back a lot further than what we've seen this year. It's been developing for at least a decade. NPR's Andrea Seabrook reports on Congress's long, slow march to the crisis it now faces.
ANDREA SEABROOK, BYLINE: Young voters of today might not recognize the government of the year 2000 - at least not by its balance sheet. The economy: booming. Tax revenue: rolling in. Expenses for war: none. And the bottom-line had a plus in front of it - a surplus of more than $200 billion.
NORM ORNSTEIN: We had Allen Greenspan, the chairman of the Fed, openly fretting that we would pay down all of our debt and that could lead to terrible economic consequences.
SEABROOK: Norm Ornstein of the conservative think tank, the American Enterprise Institute.
But a lot happened in the first two years of George W. Bush's presidency. His first order of business, giving back the surplus, he said, by cutting taxes. Then came the 9/11, the war in Afghanistan and a spike in government spending on domestic security.
In 2002, the economy hit recession. So President Bush and Congress passed another tax cut, this one to stimulate spending by businesses. By the end of the year, the surplus was gone and the government began running up the credit card. In President Bush's State of the Union address, in early 2003, he warned of rising unemployment and he outlined his plan to get people working.
(SOUNDBITE OF APPLAUSE)
PRESIDENT GEORGE W. BUSH: Jobs are created when the economy grows, the economy grows when Americans have more money to spend and invest, and the best and fairest way to make sure Americans have that money is not to tax it away in the first place.
(SOUNDBITE OF CHEERING AND APPLAUSE)
SEABROOK: By this time, though, some lawmakers had begun to worry. The centerpiece of this tax cut was a reduction in capital gains taxes and a lower rate for investment income, both targeting wealthier Americans.
Democrats, lead by House minority Leader Nancy Pelosi called it reckless.
REPRESENTATIVE NANCY PELOSI: It is fiscally irresponsible, it does not create jobs, it is not fair and the voters will know about that.
SEABROOK: Congress was already spending more money than it was taking in. Cutting taxes again would make that worse.
Analyst Norm Ornstein says fiscal hawks didn't like it.
ORNSTEIN: You had not just Democrats, but a lot of independent observers saying, hey, look, this is a huge drain on revenues. And guess what? It was a huge drain on revenues.
SEABROOK: The Bush administration appeared to be on the brink of invading Iraq - a second war to fund. And that made Republican Senator John McCain uneasy.
SENATOR JOHN MCCAIN: Let us wait until we have succeeded in Iraq, until we have some idea of what percentage of the cost of the aftermath of those hostilities we will have to bear.
SEABROOK: Support it in the Senate was so weak, Republican leaders had to use an arcane budget process to push it through. But that meant the cuts had to have a lower price tag, so the Bush administration made the cuts sunset or expire later in the decade. It appeared as though the cuts would cost the Treasury some $350 billion.
But if they were to be extended, says analyst Ornstein...
ORNSTEIN: Every economic forecast from the Congressional Budget Office on down showed that it would lead to a bleeding of federal revenues and immense deficits larger than anything we had ever seen.
SEABROOK: And if there was any doubt about Republicans' plans for the cuts, President Bush made them clear in his very next State of the Union Address.
BUSH: What Congress has given, the Congress should not take away. For the sake of job growth, the tax cuts you passed should be permanent.
(SOUNDBITE OF CHEERING AND APPLAUSE)
SEABROOK: Republicans are still working on that. In recent years, deep recession, stimulus spending and ongoing war have made America's budget outlook much, much worse. All the while, those tax cuts have been extended.
Now they've become the biggest stumbling block in lawmakers' attempt to fix the long-term budget problem. Republicans want to make them permanent. Democrats want to finally let some, or all of them, sunset.
Andrea Seabrook, NPR News, the Capitol.
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