Why the Bush tax cuts will matter more

Anonymous posted the following good question in the Comments section of yesterday's blog:

Please explain this to me - tax cuts were implemented in the early 2000's and by 2007 our deficit was only roughly $160 billion. So how could the same tax rates today that we've had for a while now account for such a large percentage of the deficit going forward? The massive increases in the annual deficits to over a trillion a year are in large part due to the Bush tax cuts when in 2007 we had much smaller deficits and the same rates? Doesn't make sense to me. Something else must have changed which caused the deficit to increase so much.

I think this is an important point. In the early 2000's there was not much of a war in Afghanistan and just the beginning of the war in Iraq (in other words, no "surges"). The second lie the Bushies told was that the war in Iraq would "pay for itself" out of oil revenues. (The first was the WMD nonsense.) This never happened and, in fact, the war was basically off-budget. In other words, bookkeepers never let the expenses appear as items in Bush's budget and they were never voted on. Money was shifted or borrowed from various accounts (probably Social Security, e.g.). The full fraud involved here is only now beginning to surface. The official deficits at this time were artificially low -- just like the official value of subprime mortgage-backed securities.

In addition, tax revenues from all sources, even taking into account the Bush tax cuts, were still reasonable, since the U.S. had just come out of a recession that was part of the usual business cycle -- even though this recovery, as I've pointed out, was less robust than previous ones, due to the tax cuts.

In any case, the situation was altered radically by the speculation-induced Great Recession which started around 2008. Business did poorly and many people lost their jobs; even rich folks had diminished incomes. The economic contraction was such that the Bush tax cuts were less significant since general income and wealth was in a severe downturn, so nearly everyone paid less taxes. As Anonymous pointed out, things began to change after 2007.

In the past year or so, as we started to recover from this recession, the incomes of wealthy folks started to take off again. (Not so the incomes of the non-rich, unfortunately). Now the effect of the Bush tax cuts becomes significant again, since the rich are getting richer once again, and we are not collecting the money we need from them. Down the road, as the economy rebounds, this will be even more the case. Since the experience of the past half century is that, in what now passes for a "healthy" U.S. economy, middle-class wealth and income is basically static, but upper class income increases, we see that the significance of the Bush tax cuts for the wealthy will be more and more significant down the road.

I am a mathematician not an economist, but this is my understanding of the situation. I encourage any economists reading this to post comment on this topic. Thanks to "Anonymous" for raising this point.