I support low taxes and fiscal discipline. With that in mind it is edifying to look back on past fiscal policy and to see if the choices made were wise, or what we can learn about future economic policy. The following is a response to the Bush tax cuts in January 2001 and the then projected U.S. Government surplus of $5.6 trillion dollars over the next ten years(ending 2011), based on the front page January 2001 Article in the New York Times, “ Surplus Estimate Hits 5.6 Trillion”.
With a government, according to the article “awash in surplus money” we should have considered saving money for exigent contingencies. President Bush’s priorities in terms of budgetary spending were tax cut, military, education, and healthcare. With a 5.6 trillion dollar projected surplus over 10 years, President Bush spent 1.6 trillion dollars on a tax cut; $2.48 trillion was off limits as part of Social Security, which left us with a projected $1.52 trillion surplus. With that $1.52 trillion surplus $400 billion was part of Medicare and $200 billion was for the military and more tax cuts. That would have left us with $920 billion in surplus money, of which $400 billion was to go to interest on the debt. That still would have left us with $ 520 billion in surplus money over ten years. Of course none of this was based on reality since the economy went into recession instead of growing at 3% like it was supposed to, and the Government had to fight two wars simultaneously.
President Bush passed tax cuts in 2001 under the theory that it was the “people’s money” and they should spend it rather than the government. He thought we really had a surplus. At the time annual GDP growth was projected at roughly 3% to 3.5% per year over the next ten years by the CBO. The surplus estimates were based on those projections. Today more than ten years later, the U.S. Government stands over 18 trillion in Debt and counting. Little did they know that in the next ten years they would need to bail out the banks and auto industry to the tune of $800 billion, that there would be two wars, the housing market bubble would burst, there would be the sub-prime mortgage scandal and an economic recession.
In retrospect, the government should have planned ahead for a Rainy Day and saved much of what was to be surplus money for an emergency like the one we had. In fact, the tax cuts did little to stimulate economic growth because it was a Consumption/Demand side policy. Getting people to spend more money and to consume more rather than invest does not a healthy economy make. The U.S. Government Debt has topped $18 trillion. One can only conclude that we should have saved part of that tax cut money and what is now the long gone surplus money.
Stevenson, Richard W. (01/31/2001) “Surplus Estimate Hits 5.6 trillion” The New York Times. www.nytimes.com/2001/01/31/us/surplus-estimate-hits-5.6-trillion.html
Retrieved (05/08/2015) http://www.NYTimes.com
In Billion of Dollars
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 total
Projected surplus- 281 313 359 397 433 525 573 635 710 796 889 5,610
Actual surplus(deficit)- 128 -158 -378 -810 -318 -248 -161 -459 -1,413-1293 -1300 -6140
Changes in CBO baseline projections
Starting fiscal 2013 until fiscal year 2021 mandatory sequestration( spending caps and mandatory spending cuts have gone into effect). lsdun