The Tax Cut's Role in Changing the Surplus to a Deficit

Here is a National Review article that tries its best to belittle the degree to which the Bush tax cuts helped erode the government surplus and drive deficits up.

Greg Mankiw writes that "Reasonable people can disagree about whether the Bush tax cuts were advisable, but don't let anyone tell you that the tax cuts were the main reason the surplus of 2001 disappeared."

But Mankiw glazes over the fact that in swinging from a projected $5.6T surplus to a $2.9T deficit (an $8.5T swing), around (and the number is likely slightly overblown due to not accounting for the degree to which tax cuts pay for themselves) $1.8T of that is directly attributable to the tax cuts.

So what is undeniable is that the tax cuts represent about 10-20% of the overall swing, having a larger impact than increased defense spending. Moreover, the current deficit projections would be about a third of what they are now, if the tax cuts weren't in place.

We could also look at the part of the swing from surplus to deficit that was independent of changes in economic assumptions by taking out the $2.5T increase in "technical adjustments and revised economic assumptions." Doing this, we can see that the tax cut is on the order of 20% of the now $6.5T swing.

In other fun economic news, Ross Perot's company is opening a plant in old Mexico. Giant sucking sound anyone?