The federal deficit: remembering how we got here

 A story on NPR this morning reminded listeners about important and surprising facts we may have forgotten about how we got the current federal deficit, and how we got into this mess.

A few of the surprises: It wasn't just Democrats against the proposed Bush tax cuts in personal income and especially capital gains. Norm Orenstein, of the conservative American Enterprise Institutes, reminds people he and others said at the time that the cuts in capital gains taxes were going to be a huge drain on federal revenues.

This was in and around 2000-2002. Says Orenstein: "Guess what, it was a huge drain on federal revenues."

In 2000, we had a $200 billion federal surplus. Now, it's in the area of $1.5 trillion., a seven-fold increase.

But we continued to cut taxes, and it is important to remember that the Bush tax cuts that were recently extended, had to be put through with the same, some say shady, parliamentary procedure they used to get the health care reform through Congress - the fuzzy "reconciliation" process.

Another surprise: the report reminded people that Allen Greenspan was saying paying down all our debt would have negative economic implications, would hurt growth.

But doing a little research shows that seven House Democrats and 2 Senate Democrats voted for the Bush tax cuts in 2003. One Republican in the House and one in the Senate voted no.

This will be instructive when the votes comes at the end of 2012 whether or not to extend the cuts. As someone who is schooled in economics, it seems to me there hasbeen enough time to examine whether these tax cuts "worked" in other words, did they create jobs. I would say no. Did they help keep the jobs that were already there? Possibly.

The tax cuts did put more money in the pockets of Americans instead of paying taxes. That's a given, but there was apparently so much "capacity" in the currently existing economy, no new jobs were needed to satisfy the increased consumer spending.

That's not surprising given a job market where one person is now doing the work that used to be done by two or three people.