Here you go Tony
Let's play dueling "cut and paste"
I won't even bother highlighting. You can just read the whole thing
http://www.cbpp.org/cms/index.cfm?fa=view&id=3036Heritage Foundation’s Analysis is MisleadingA recent Heritage Foundation report claims that tax cuts and other policies initiated during the Bush administration are not a significant factor behind the deficits we face in the coming decade.[10] Heritage places blame for the deficits squarely on rapid growth in Social Security, Medicare, Medicaid, and interest costs, and dismisses the significance of weak revenues in general and the 2001 and 2003 tax cuts in particular. But Heritage’s analysis is both misguided and seriously misleading.
■Heritage ignores the fact that rapidly-rising interest costs — one of its “culprits” behind rising outlays — result in significant part from the tax cuts and other fiscal policies of the Bush era . The tax cuts and the wars in Iraq and Afghanistan accounted for over $2.6 trillion of our national debt by the end of 2008 and, if continued, will add another $7 trillion in debt by 2019. In that year alone, about $450 billion of our interest bill will stem from those two policies. It is disingenuous to tar interest as a “fast-growing” spending program while ignoring which policies — including tax cuts — account for that fact.
Heritage admits that it understates the cost of the tax cuts by omitting their impact on rising net interest costs. “On the other hand,” Heritage asserts, “the original CBO scores of tax cuts have been underestimates because they excluded all supply-side feedback effects and overestimated the GDP between 2008 and 2011, which made all revenue and tax cut projections appear larger.” That convenient justification, however, misses the boat. We know that the tax cuts led to higher borrowing and larger debt-service costs. We do not know that they led to extra economic activity (or that they would have a positive effect on economic activity if made permanent). In fact, analyses of so-called “dynamic scoring” of tax cuts have found that: 1) such estimates generally come close to the standard estimates;[11] 2) stimulative effects may appear strong in the short run but tend to dissipate over longer horizons; and 3) most importantly, as both CBO and the Joint Committee on Taxation have concluded, large tax cuts financed by borrowing can harm the economy over the long term rather than help it. [12] In short, there is no reason to ignore the enormous debt overhang that the Bush tax cuts caused and plenty of reason to be skeptical of their economic benefits. Including the interest costs, the Bush-era tax cuts account for over $700 billion — or nearly 55 percent — of the deficit projected for 2019 under current policies.
■Heritage ignores the fact that the share of deficits accounted for by the Bush-era tax cuts will grow in future years as the impact of the economic downturn on deficits diminishes . Because the economic downturn and efforts to combat it have such a large effect on the deficit in 2010, the share of the deficit accounted for by the tax cuts seems relatively modest; we estimate that the tax cuts account for about one quarter of the 2010 deficit. But as the effects of the downturn recede, the tax cuts will account for a much larger share. In 2019, the tax cuts, if continued, will account for nearly three-fifths of the deficit. And, despite the growing impact of rising health care costs and the continued aging of the population after 2019, the tax cuts will continue to have a major impact on the deficit. The Center has estimated that not extending the tax cuts — or fully paying for the cost of extending them — would reduce the projected budget shortfall through 2050 by two-fifths. [13]
■In constructing its baseline, Heritage partly assumes its own conclusion. The baseline projections developed by Heritage generally resemble CBPP’s, with one crucial difference. Heritage assumes that regular discretionary spending (other than war costs and stimulus funds) will grow at the same rate as the GDP over the next 10 years. In contrast, we assume that such appropriations will grow somewhat more slowly in the 10-year budget window because they will grow with inflation; this is the standard, widely accepted baseline assumption. Heritage’s decision to scrap normal baseline practices and assume higher levels of discretionary spending boosts such spending by more than a full percentage point of GDP by the end of the ten-year period and adds to interest costs as well. Heritage then uses this increased spending it assumes to buttress its claim that it is excessive spending growth that causes the deficit. In theory, policymakers might choose to increase discretionary spending to keep pace with GDP, but that is highly unlikely in these straitened times. And that is not how the Budget Enforcement Act, CBO, and the Office of Management and Budget define “current policy” when they make their baseline budget projections for the coming decade. [14]
■It was not a sudden spurt of growth in Social Security, Medicare, and Medicaid that turned projected budget surpluses into deficits . CBO and many budget analysts have long pointed out that the “big three” entitlement programs will swell in future decades as a result of an aging population and steady growth in per-capita health-care costs.[15] Indeed, CBO had already projected that this would eventually occur when, in 2001, it projected significant budget surpluses through 2011 and years beyond . [16] Since the growth in these large programs was anticipated (other than the growth due to enactment of the Medicare prescription drug benefit), it is not what turned projected surpluses to deficits.
Moreover, although CBO was projecting years of surpluses as the Bush Administration took office in 2001, it nevertheless warned that the nation’s long-term fiscal health was worrisome. The Bush Administration and Congress nevertheless opted to ignore these warnings and to cut taxes deeply, establish a Medicare drug benefit without covering its costs, and fight two wars on borrowed money.
Technical Note
Baseline projections depict the likely path of the federal budget if current policies remain unchanged. We base our estimates on CBO’s latest ten-year projections, published in March 2010, with several adjustments to reflect what will happen if we continue current tax and spending policies.
Specifically, our baseline includes the budgetary effects of continuing the 2001 and 2003 tax cuts that are scheduled to expire after 2010, renewing certain other so-called “tax extenders” such as the research and development tax credit, and continuing relief from the Alternative Minimum Tax (AMT). Our baseline also assumes the effects of continuing to defer scheduled cuts in payments for Medicare providers, as has routinely occurred in recent years, and instead providing doctors with a payment increase based on the Medicare Economic Index. We also account for a gradual phase-down of operations in Iraq and Afghanistan. In all cases we based our adjustments on estimates published by CBO.
We calculated major components of the deficits as follows:
■Economic downturn — This category includes all changes in the deficit that CBO labeled “economic” in the five reports — in January, March, and August 2009 and January and March 2010[17] — that it has issued since September 2008, which total $1 trillion over the 2009-2018 period. It also includes the bulk of revenue changes that CBO classified as “technical.” In the revenue area, so-called technical changes essentially refer to trends in collections that CBO’s analysts cannot tie directly to published macroeconomic data. In fact, those data become available with a lag and are subject to major revision; weak revenues are often a tipoff that the economy is worse than the official statistics suggest. Furthermore, some key determinants of revenues — such as capital gains on stock-market transactions — are tied to the economy, but those influences are not captured by the standard macroeconomic indicators. Because the economic-versus-technical distinction is so arbitrary for revenues, we have ascribed most of CBO’s large, downward “technical” reestimates to the economic downturn. We add the associated debt-service costs. The technical reestimates to revenues and the associated debt-service costs add $1.5 trillion and $0.4 trillion, respectively, to this category over the 2009-2018 period.
Combined, the factors that we ascribe to the economic downturn account for nearly $3 trillion in extra deficits in 2009 through 2018. [18]
■TARP, Fannie, and Freddie — The Treasury spent $243 billion for these entities in 2009 ($151 billion for TARP and $91 billion for Fannie Mae and Freddie Mac, net of dividends received). Projections for 2010 through 2019 come from CBO’s January 2010 baseline. We computed the extra debt-service costs, which total $111 billion over the 2009-2019 period. (By 2014, virtually the entire cost shown in Table 1 represents debt-service costs.)
■Recovery measures — When ARRA was passed, it bore a “headline” cost of $787 billion as officially estimated by CBO. [19] In January 2010, CBO revised that figure to $862 billion, chiefly to reflect higher costs than initially expected for ARRA’s provisions governing unemployment insurance and the Supplemental Nutrition Assistance Program (commonly known as food stamps) — primarily as a result of economic conditions — and for Build America Bonds.[20] We removed the portion of ARRA costs ascribed to indexing the AMT for another year.[21] Annual AMT “patches” have been a fixture since 2001, and ARRA just happened to provide the vehicle. The AMT provision accounted for $70 billion of ARRA’s $862 billion cost, leaving $792 billion. CBPP then added the cost of several smaller, discrete recovery measures that have been enacted in late 2009 and early 2010, totaling $84 billion in 2010 (but just $38 billion over the 2010-2019 period).[22] We then added the associated debt-service costs, which amount to $317 billion over the 2009-2019 period.
