2008 Budget: Facts & Myths

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Democrats and Republicans are spinning their heads off the 2008 Budget proposal. The numbers in the budget proposals are the numbers regardless of how they are spun, and therefore, the budget numbers are fact based, regardless of the spin. Here is a look at context, facts, and lies of the 2008 budget, sparked by an article by FactCheck.org.

Context: An annual federal budget attempts to define a one year budget, as well as, the longer term goals and budget for several to many years out, to give context to the current year's budget. It is important that Congress do this, because without a longer term context for this year's budget, they cannot address deficits and national debt, for example, if they ignore the current year budget's effects on the longer term national financial picture.

Lies: Republicans want to spin the 2008 budget as the biggest tax increase in history. This is a blatant lie. Compared to current tax law, the 2008 budget does not raise taxes. So, where are Republicans coming from? When Republicans in 2001 through 2003 put in place tax cuts to stimulate the economy, they purposefully, put in place an automatic reversal of those tax cuts in 2011. They did this for several reasons.

First and foremost, the fact is, tax cuts reduce revenue to the federal government. This is irrefutable economics 101. Many Republicans try to argue that the stimulus in business and jobs creates more tax payers, and therefore, the tax cuts recover the lost revenues by an increase in the number of tax payers, as well as a healthier economy causing higher earnings which increases taxes collected over what would have been collected if they weren't earning as much.

But, this Republican argument doesn't pan out, historically. Following Regan's tax cuts in the 1980's and Republican tax cuts in the 1990's and 2001-2003, deficits followed and the national debt went up. There is also the valid logical argument that if cutting taxes increased revenues, eliminating taxes altogether would end deficits and debt altogether. Of course, that is nonsense as long as the government exists, because if a government exists, it spends money to sustain its existence with pay and policy implementation like armies, printing money, etc.

Tax cuts make sense as a tool when the economy is suffering from a recession, as they stimulate economic growth by freeing up money that would have been paid in taxes to be invested to earn more money. Invested money is borrowed money. That is to say, businesses and people borrow that freed up money and pay the investor a return for borrowing it. But, tax cuts reduce government revenues, and if spending by government is not commensurately cut to equal the reduced revenues, deficits result causing the government to borrow money to keep it operational.

The more the government borrows, the more total interest it pays to those it borrows from. And the more interest it pays, the more taxes it must collect to pay that increased interest expense.

So, back to the Republican lie. In order to pass the tax cuts, they had to demonstrate the tax cuts would not bankrupt the nation in the long term. Therefore, they included in their tax cut bills, a date at which time the tax cuts would end, and the IRS would go back to the rates of tax collection before the 2001 tax cuts were enacted. The Republicans are trying the sophist's argument on Democrats saying that if Democrats allow the tax cuts to end as Republicans planned, Democrats will be raising taxes to new highs.

This is so illogical as to be laughable, if it were not for the fact that many a voter will be taken in by the lie. There are 3 overwhelming reasons why the Republican spin is deceptive.

  • Ending the tax cuts was the Republican's idea. To blame Democrats for allowing the Republican plan to go through as proposed, is illogical.
  • Moreover, the economy no longer in recession and no longer requires the stimulus of tax cuts to jump start businesses and jobs. In fact, the world over, cash is abundantly available for borrowing at historically low rates. So, the rationale for the tax cuts no longer exists.
  • Finally, there are the deficits still being added to the national debt and growing American interest payments on government debt. Increasing the tax revenues by allowing the tax rate cuts to expire, will in fact, increase government revenues for as long as the economy remains out of recession.

So, the Republican spin that allowing their own plan to sunset the tax cuts results in Democrats creating the largest tax increase ever, is a blatant political lie.

Myths: Democrats too however, are not without their own spin in this 2008 budget matter. In their budget proposal, they claim that the 2008 budget is the first installment on ending the deficit spending by 2012, and therefore, halting the growth of national debt. But this too is a lie. The fact is, Democrats are in disagreement over what shape future tax and budget policy should take, and as long as that disagreement is a reality, they don't have a plan, not even one to end deficits in 2012.

Democrats say they will retain some portion of estate taxes, but, do not yet agree on how much. Democrats say they want to retain many of the the middle class tax cuts granted in Republican's 2001 and 2003 tax cuts. But, the House Democrats and Senate Democrats aren't even close to an agreement on the Alternative Minimum Tax (AMT) which has begun to net middle class tax payers, despite the fact that the AMT, was designed to net only the top most tier of the wealthy who would otherwise shelter their incomes from paying taxes at all.

So, when Democrats on the Congress Floors say they have a plan to end the deficits by 2012, the fact is, they only have a wish to do so: not a plan. A plan would have to address the diminishing surpluses of Social Security, the out of control inflation in health care costs, and hence, Medicare costs, which neither House nor Senate Democrats even begin to address.

Facts: All three budget proposals say they will end deficit spending by 2012. But, only the Democratic House budget actually achieves this on paper. The Senate bill failed to offset certain interest costs attached to amendments putting it into several millions of deficit in 2012. The President's proposal, when tallied by the Congressional Budget Office, actually results in a 31 billion dollar deficit by 2012, though the Office of Management and Budget (OMB) says it will balance.

Taken in whole, and separating the spin and lies from the facts, there is good news and bad. The good news is all three budgetary arms of our federal government are attempting to end the deficits and have this as a priority. The bad news is, none of them, as yet, show any desire to attempt to address trillions of dollars deficits our nation faces with the impending entitlement crisis. And even if the desire were there, consensus would be as scarce as rats on a sunken ship.


On the Joey Reynolds Show this past week, an NYU prof. pitching a new book called On Nation In Debt said that both Jefferson and Hamilton wanted to pay off the national debt. They just disagreed about the timing and the type of taxes. Why are today's politicians so polarized ... and polarizing?

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This page contains a single entry by David R. Remer published on May 31, 2007 3:50 AM.

A Path Away From Political Failure was the previous entry in this blog.

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