Paul Krugman had an excellent column in today’s New York Times about what’s behind the skyrocketing deficit:
A recent study by the Center on Budget and Policy Priorities does the math. While overall government spending has risen rapidly since 2001, the great bulk of that increase can be attributed either to outlays on defense and homeland security, or to types of government spending, like unemployment insurance, that automatically rise when the economy is depressed.
Why, then, do we face the prospect of huge deficits as far as the eye can see? Part of the answer is the surge in defense and homeland security spending. The main reason for deficits, however, is that revenues have plunged. Federal tax receipts as a share of national income are now at their lowest level since 1950.
Of course, most people don’t feel that their taxes have fallen sharply. And they’re right: taxes that fall mainly on middle-income Americans, like the payroll tax, are still near historic highs. The decline in revenue has come almost entirely from taxes that are mostly paid by the richest 5 percent of families: the personal income tax and the corporate profits tax. These taxes combined now take a smaller share of national income than in any year since World War II.
This decline in tax collections from the wealthy is partly the result of the Bush tax cuts, which account for more than half of this year’s projected deficit. But it also probably reflects an epidemic of tax avoidance and evasion. Everyone who wants to understand what’s happening to the tax system should read “Perfectly Legal,” the new book by David Cay Johnston, The Times’s tax reporter, who shows how ideologues have made America safe for wealthy people who don’t feel like paying taxes.
His main point is that Bush’s tax cut for the rich is the main culprit behind the growing deficit, not the growth in spending that has been happening at the same time. It’s something you’ll never hear Bush’s new critics on the right admit, because they’d just as soon see the tax cuts stay in place and slowly starve the federal government. Bush’s levels of spending on things like the war on Iraq and “homeland security” are a problem, but his tax policy is a bigger one.