A Look Back At Bush's Surplus, Tax Cuts President George W. Bush signed his first major round of tax cuts in 2001, reveling in a surplus and describing the reductions as giving extra federal funds back to taxpayers. Ten years later, the President Obama is facing a massive budget deficit. Are Bush's tax cuts to blame?
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Amid Deficit, A Look Back At Bush's Surplus, Tax Cuts

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Amid Deficit, A Look Back At Bush's Surplus, Tax Cuts

Amid Deficit, A Look Back At Bush's Surplus, Tax Cuts

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This is MORNING EDITION, from NPR News. I'm Renee Montagne.


And I'm Linda Wertheimer.

This week, Vice President Biden meets again with Republican and Democratic lawmakers to look for ways to reduce the federal budget deficit. For every dollar the government spends this year, it will collect just 57 cents in taxes. That's partly because of the sluggish economy and partly because lawmakers keep spending so many dollars. But the deficit also reflects deliberate moves to reduce taxes. The biggest of those came 10 years ago today, when then-President George Bush signed his first big round of tax cuts.

NPR's Scott Horsley reports.

SCOTT HORSLEY: The signing ceremony was originally going to be outdoors, on the South Lawn of the White House. But it had to be moved to the East Room on account of rain. Weather wasn't the only forecast that turned out to be unduly optimistic. Listen to how President Bush described the money he was giving back to taxpayers.

President GEORGE W. BUSH: We recognize, loud and clear, the surplus is not the government's money. The surplus is the people's money, and we ought to trust them with their own money.

(Soundbite of applause)

HORSLEY: That surplus didn't last long.

Maya MacGuineas, who heads the Center for a Responsible Federal Budget, notes that within a year, the federal government was back to borrowing money, and it's been running in the red ever since.

Ms. MAYA MACGUINEAS (President, Center for a Responsible Federal Budget): This is one of those you-can't-count-your-chickens-before-they've-hatched moments.

HORSLEY: To be sure, the tax cut was not the only blow to the government's bottom line. The recession took a toll, and after September 11th that year, there were new expenses for homeland security and fighting al-Qaida. But instead of paying more in taxes to cover those costs, Americans were paying less. Wealthy families enjoyed the biggest savings. But Roberton Williams of the Tax Policy Center says the break was widespread.

Mr. ROBERTON WILLIAMS (Tax Policy Center): Everybody got something, because one of the things the 2001 act did was create a 10 percent tax bracket, which lowered taxes for people even at the bottom end of distribution. It doubled the child tax credit from $500 to $1,000, which for families with children, was a big boon.

HORSLEY: Good for families with children, not so good for the government's coffers.

Conservatives often promote tax cuts as a way to stimulate economic growth, but the years after 2001 were marked by the slowest growth since World War II.

The tax cuts also defied small-government activists, who hoped to starve the beast. MacGuineas says under both Presidents Bush and Obama, the government beast has eaten better than ever, though much of its lunch money is now borrowed.

Ms. MACGUINEAS: You can't cut taxes without cutting spending. But what did we do? We cut taxes and we increased spending. So we really left ourselves a tremendous fiscal mess.

HORSLEY: Glenn Hubbard, who was President Bush's top economic advisor in 2001, agrees the government can't keep running on red ink. But Hubbard insists the tax cuts are not to blame.

Mr. GLENN HUBBARD (Former Economic Advisor, President Bush): I think there's a very good case to be made for low marginal tax rates. And I'm still exactly where I was when I worked with President Bush on those low marginal rates. At the same time, we are in a position of fiscal unsustainability. If it were my choice, we would solve that on the spending side.

HORSLEY: President Obama's fiscal commission and other bipartisan groups have concluded it will take some increase in tax revenue, along with lower spending, to bring the budget back into balance. As a share of the economy, tax revenues today are the lowest they've been since 1950. Even so, the Tax Policy Center's Williams says raising revenue will not be an easy sell.

Mr. WILLIAMS: We've seen a watershed change in people's perceptions of taxes. Part of that is the viewpoint of we should never, ever, ever raise taxes. A majority of Republicans in both houses of Congress have signed pledges to that effect.

HORSLEY: And it's not just Republicans anymore. Back in 2001, a majority of Democrats voted against the Bush tax cuts. But last December, most Democrats, including President Obama, joined Republicans in extending the cuts for two more years. After that, the president wants to end the cuts for the wealthiest Americans, but it's the tax cuts for everyone else that really busts the budget. And MacGuineas notes those cuts now enjoy bipartisan support.

Ms. MACGUINEAS: What once was the Bush tax cuts, which a lot of Democrats were running against, has really now become the Bush-Obama tax cuts. And unfortunately, what we're seeing is the way politics work. That everybody likes to do the easy stuff. Now we're going to have to talk about cutting spending, raising revenues. That's going to be a lot less fun.

HORSLEY: Some lawmakers have suggested a complete overhaul of the tax code, to eliminate deductions and other loopholes. That would be one way to boost revenue and begin filling the hole in the budget we've been digging for the last 10 years.

Scott Horsley, NPR News, Washington.

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