Washington Post Factchecker:
We’ve noted this history before, but many people have forgotten it. Given that the dispute over whether to extend all of the Bush tax cuts has now led the nation to the edge of the “fiscal cliff,” let’s take a trip back in time to recall why the Bush tax cuts were enacted in the first place. (The Fact Checker covered passage of the Bush tax cuts as an economic policy reporter for The Washington Post.)
Oddly, a key reason the tax cut became reality was because of a fear the United States soon would have zero debt.
With federal revenue soaring in 2000, generating budget surpluses, there was pent-up desire for a tax cut, especially among Republicans.
George W. Bush had just been elected on a pledge to cut taxes, but his plan did not get much traction among Democrats until then-Federal Reserve chairman Alan Greenspan warned Congress of a dangerous new specter — that the government would pay down the national debt, and there would be no place to park excess funds.
“At zero debt, the continuing unified budget surpluses currently projected imply a major accumulation of private assets by the federal government,” he declared.
Yep, you read that right. The perceived danger was — believe it or not — that there would be no national debt left.
Greenspan, however, offered caveats and warnings that were largely ignored by Congress. In fact, he said that any tax cuts should have triggers that would halt them “if specified targets for the budget surplus and federal debt were not satisfied.”
In other words, the tax cuts would have been terminated or reduced, depending on the nation’s economic circumstances — precisely the tactic Republicans said was a non-starter in the 2011 debt-ceiling debate.
“We need to resist those policies that could readily resurrect the deficits of the past and the fiscal imbalances that followed in their wake,” Greenspan said, back when the federal debt was $5.7 trillion. (It is $16.3 trillion today.)
The tax cut that emerged a few months later was a classic congressional compromise — a hodgepodge of rate cuts and special-interest tax provisions that actually was much larger than officially scored. It is frequently reported that the tax cut reduced revenues by $1.35 trillion over 10 years, but that’s not accurate.