Tazteck notes that the Bush tax cut will definitely help his bottom line. Still, he seems to have some reservations about the deficit. I cannot say that I blame him.

The fact is, that the tax cut will put more money into the hands of most Americans. Still, we do have the looming deficit out there to think about. So, just what is the real cause of the deficit? If you said the tax cut, you'd be wrong.

There are actually several factors involved in creating the budget deficit.

1. Lower tax receipts -- This is the single biggest cause of the deficit. The economic slow down meant that less revenue was being collected. With job losses, and stagnating salaries, tax receipts from individuals declined. With consumer spending stagnating, and the dot-bomb bubble bursting, receipts from corporate income taxes also declined. A look at the Congressional Budget Office numbers show that the government received $2.025 Trillion in tax receipts for the year 2000. In 2001, the receipts had declined to $1.991 Trillion, and in 2002 they declined even more to $1.853 Trillion.

2. Increased government spending -- While government revenue was declining, lawmakers kept on spending. Naturally, the 9/11 attack necessitated the need to increase defense spending, but there were plenty of other pork programs in there too. Did we really need, TWO farm subsidy bills? Those steel tariffs seemed a bit unnecessary as well. Lawmakers on both sides of the aisle have been doling out cash to 9/11 victims, commercial airlines, state and local governments, and many other special interests. With a thin margin in the Senate, and as Republicans and Democrats struggle for political power, spending isn't likely to be kept in check. Partisan politics are largely to blame for the spendthrift Congress.

In addition to new projects, not one single existing government program had their budget held in check, much less suffered from an actual reduction in funding. In fact, every single government program received an increase in funding. Again, we turn to the CBO figures. For the year 2000, lawmakers spent $1.788 Trillion. In 2001, spending increased to $1.863 Trillion, and in 2002 spending increased even more to $2.011 Trillion. Since Congress deceitfully labels a tax cut as an "expense" I'll note that only about $50 Billion ($0.050 Trillion) of this spending was from the 2001 Bush Tax Cut.

So what about the budget surplus?

Well, there never really was much of a surplus. The budget surplus was a projection based on growth figures that never materialized. A look at the CBO figures shows that the largest surplus that ever really materialized was $236.4 Billion in the year 2000. That figure includes a $151.8 Billion surplus from Social Security. Taking out Social Security and the Postal Service, means there was an actual "on-budget" surplus of only $86.6 Billion at it's peak. In 2001, the last year of the Clinton budget, the budget surplus was gone, and we had an on-budget deficit of $33.4 Billion. The $120 Billion swing is too big to be accounted for by the Bush tax cut alone. After all, in 2001, we only received those $300 checks.

The Big Lie

Democrats would have you believe that giving out those $300 rebate checks is what recessed the economy. They keep blaming the deficit on the Bush Tax Cut of 2001; a tax cut that largely hasn't even been implemented yet. Somehow, taking money out of Washington, and putting it back into taxpayer hands, created a massive deficit. Never mind that Congress has passed ever increasing budgets, punctuated by a $2.3 Trillion budget this year.

The second "Big Lie" is that all the money went to "the rich". In fact, the $300 rebate was figured by lowering the bottom tax bracket from 15% to 10%. The 5% cut on the lowest bracket (the first $6000 of income) means that it actually went to everyone that earns at least $6000 a year. Crunching the numbers means that anyone making minimum wage and working at least 23 hours per week got a full rebate check. (23hrs/wk x 52wks x $5.15/hr = $6159) That's not exactly "the rich", in my book.

In addition to the rebate checks, the tax brackets have been resized, with the larger brackets decreasing later on in the process. In the year 2000, the 15% tax bracket for singles included incomes up to $26,250, with income from $26,251 to $63,550 being taxed at 28%. In 2002, the 15% bracket included income from $6,001 to $27,950. The first $6000 was taxed at 10% (as stated before). The next bracket was reduced to 27%, and included incomes from $27,951 to $67,700. That means that income that was taxed at 28% is now taxed at 15%; a substantial cut.

As 2010 approaches, the 15% bracket will be expanded to include incomes as high as $43,850, and the upper part of the original 28% bracket will eventually drop to 25%. The 31% bracket will be lowered to 28%, the 36% bracket lowered to 33%, and the 39.6% bracket lowered to 35%. Of course, all this changes with the 2003 Bush Tax Cut.

So who pays taxes?

If you look at historical data, it's not hard to see who pays the most taxes. By the IRS' own data, you'll see that over the years, the bottom 75% has been paying a decreasing percentage of total taxes. (<--click for graph) They've also been paying a decreasing percentage of their overall income. (<--click for graph) It only stands to reason then, that when taxes are cut, those people that pay more taxes will get a bigger cut.

Conclusion

It's no mystery that consumer spending has kept our economy afloat for the past few years. That indicates that getting more money into individuals hands will speed up economic recovery. Given that the vast majority of Americans work to provide a good or a service to consumers, people spending money on those goods and services is what keeps most of us employed. As incomes rise and people start going back to work, tax receipts will increase. It is that increase in tax receipts that will turn our deficit into a surplus once again. Then we can start paying down some of the national debt*. Of course, it'd help if Congress would keep spending in check.

*Given that interest rates and bond prices are at all time lows, the debt shouldn't be much of an immediate concern.