- The Washington Times - Thursday, December 6, 2001

Democratic leaders claim President Bush's tax cuts are largely responsible for the expected disappearance of the budget surpluses and the economic slump that has deepened into a recession.
But if you believe their preposterous charges, there's a bridge in Brooklyn that I can sell you.
Ever since White House Budget Director Mitch Daniels announced last week that the federal budget will begin running deficits for the next few years, House and Senate Democrats have been pinning the blame on the tax cuts.
Yet even a cursory examination of the numbers shows that Mr. Bush's 10-year, $1.3 trillion tax-cut plan has played only a very small part in the expected elimination of the surplus over the next two or three years. The overwhelming reason for the precipitous change in the government's balance sheet is the sharp reduction in tax revenues as a result of the declining economy, a bearish stock market and higher spending in the aftermath of the September 11 terrorist attacks.
Let's start with this fiscal year's 2002 budget, which will likely end in the red by next September. The nonpartisan Congressional Budget Office projected earlier this year that the government would end the fiscal period with a whopping $313 billion surplus. The cost of the Bush tax cuts during this same period will be "only" $38 billion. So what happened to the rest of the money?
The answer is: It isn't expected to come in at the same rate when economic growth was racing along at 4 percent or more, and revenue was pouring into the U.S. Treasury faster than the government could spend it. Over the past year and a half, the jobless rate shot up, business earnings collapsed, factories shut down, and there was a sharp sell-off in the stock market. In just the past three months, Congress has spent an additional $75 billion to $100 billion in the war on terrorism.
"When you have a projected surplus of $313 billion in 2002 and this surplus erodes or is eliminated, it is not because of the tax cuts," said Chris Frenze, the chief economist at the Joint Economic Committee of Congress.
"To make that kind of argument, someone has to explain why a projected surplus for 2002 would be eliminated by a tax reduction that is a fraction of that amount. How can a $38 billion tax-revenue reduction eliminate a $313 billion surplus?" Mr. Frenze said.
Nevertheless, this is the specious argument that Senate Budget Committee Chairman Kent Conrad, North Dakota Democrat, has been making. When Mr. Daniels announced that the budget will be running deficits between 2002 and 2004, Mr. Conrad said, "He left out the biggest cause the tax cut this administration pushed and got passed."
Senate Democratic Leader Tom Daschle, who has never met an income tax cut that he liked, gleefully declared, "I told you so."
However, a comparison of the large surplus projections made by the CBO for the 2001-2004 period with the year-by-year tax cuts costs over this same period shows how little the tax reductions figure into the declining surplus equation.
CBO projected surpluses of $281 billion for 2001, $313 billion for 2002, $359 billion for 2003 and $397 billion for 2004 totaling nearly $1.4 trillion. The tax cuts that are to be phased in over this period will cost $74 billion, $38 billion, $91 billion and $108 billion respectively, totaling $311 billion.
By the way, we finished the 2001 fiscal year budget, which ended Sept. 30, with a $127 billion surplus.
What this illustrates is that the economy is the driving force that determines the federal budget's fiscal condition. When the economy is doing well, as it was in the last half of the 1990s, it has a positive effect on the budget. When it is not doing well, it has a negative impact.
The 10-year tax-rate reductions have little to do with the declining revenues we're seeing now especially when you consider the backloaded nature of the Bush tax cuts, the bulk of which will not take effect until the last half of this decade.
The Democrats' claim that the tax cuts are directly responsible for the economy's weakness is equally silly. The economy has been slowing since the middle of last year during the Clinton administration. More than a million manufacturing jobs were lost in July of 2000.
Unemployment continued to rise during the end of 2000, from 5.5 million in October to 6 million in January, before Mr. Bush took office.
Actually, Mr. Bush got his tax cuts through Congress just in time. The economy was in the process of making a comeback until September 11 dealt it a tremendous blow. What we desperately need now is a stimulus bill that accelerates the tax cuts to put people back to work and help get the economy growing again.
And guess who is trying to prevent that from happening?


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