In response to a recent post about John Edwards being unqualified to be President, I made a comment about Bush cutting taxes in a time of war. MByrne, the author of the post, replied that the tax cuts have actually helped pay for the war in Iraq. I don’t agree with his assessment and this post will explain why I think his assertion is false.
The whole idea behind the cuts was that American citizens and corporations would have more “disposable” income and would then reinvest it and spend it to help the economy. As with most things that have come out of this “Republican” era of government, that assertion is an oversimplification of the facts. Americans don’t like taxes so when someone says tax cuts, they salivate like Pavlov’s dog and jump on board. The question remains: have these tax rate cuts helped pay for the war in Iraq? The answer to that is no.
The tax rate cuts have increased tax revenue from about $1.7 trillion in 2003 to an estimated $2.5 trillion in 2007. Those are called receipts. Our debts, or outlays, have also increased since 2003 from about $2.1 trillion to an estimated $2.7 trillion in 2007. Our deficit was $248 billion last year and is projected to be about $244 billion this year. So, we were in the hole by $248 billion last year. There’s also this number called “on-budget,” which as the name suggests, is a number signifying how close we came to the President’s budget numbers. In 2006, we were $434.5 billion over budget. What was main cause of this discrepancy? An ugly little thing called supplemental funding for the war in Iraq. Supplemental funding is basically spending money that was not included in the budget, hence the $434.5 billion in over-budget spending. According to the Congressional Budget Office, Congress has provided over $503 billion in supplemental funding for mandatory diplomatic operations in Iraq, Afghanistan and other regions since 2003. Over 70% of that figure (352.1 billion) has been for Iraq. The current 100 billion supplemental request is being played out politically between the Democratically controlled Congress and the President. Of course, Iraq hasn’t been the only reason for supplemental funding (Katrina recovery, for example); however, it has been the primary reason since 2003.
The tax rate cuts provided more tax revenue for the government, but we still ran high deficits, so they didn’t actually pay for anything. It was funny money. We can argue whether or not it substantially stimulated the economy. It did put a little “money in people’s pockets,” but the federal minimum wage didn’t increase, corporate tax revenues as a share of profits have fallen and the AMT (alternative minimum tax) will affect an estimated 23 million Americans this year (and up to 32 million by 2010). Not to mention increasing oil prices, the significant slowing down in the housing market, as well as median household income falling for the past five years. The DOW Jones and other indices are doing well, but that just means the corporations are making tons of money. 51% of Americans don’t own any stocks at all. Most of the stocks that Americans do own are tied to their retirement plans anyway. So while the economy is doing well for some (some of the few in my opinion), it is not doing so well for most and the cost of the war in Iraq sucks away billions of money (we don’t really have) per month with no tangible results.
Sources:
Government Accountability Office,
Congressional Budget Office,
Tax Policy Center,
White House Office of Management and Budget,
Federal Reserve Bank of New York.
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