Bush Budget Endangers Bush Tax Cuts

Big budget deficits make it more likely that tax rates are headed higher.


President Bush's $3.1 trillion budget predicts $400 billion budget deficits this year and next. Blame the fiscal stimulus package and the slowing economy that will generate less tax revenue.

Big deficits will surely work in favor of Democrats who want to repeal some or all of the Bush tax cuts or at the very least make sure they "sunset" at the end of 2010. Recent history has shown that when deficits are big, taxes tend to get raised, as in 1982 and 1993. But as I wrote last spring, the tax cuts were already in trouble because of Bush's own polices: 1) failure to make the 2001 tax cuts "growthy" enough; 2) failure to control spending; 3) failure to reform entitlements.

So we seem to be headed toward a scenario where short-term stimulus that has had little real effect on the economy will push aside longer-term reforms that could enhance America's long-term productivity. At his blog, Larry Kudlow breaks it all down for us:

Will somebody please tell me how extending the Bush investment tax cuts can survive this big deficit onslaught? This is something Senator McCain and Governor Romney should address. Will they be cowed by the reemergence of an oversized deficit, especially at a time when Republican voters appear more concerned with deficit reduction than tax cuts?...What will McCain and Romney do? They both want to expand the defense budget and the size of the military services, as they should, to strengthen our national security in the war on terror. But of course this costs money. Big money. President Reagan argued successfully in the 1980s that low tax rates reignite economic growth—growth that was absolutely essential to generate the resources necessary for a strong national-security posture.... My question is whether McCain and Romney will adopt the Reagan approach, or will they see higher tax rates as a tradeoff to a stronger military à la Eisenhower?

Bush, George W.
tax deductions
federal budget
deficit and national debt

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