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Deficits Redux — Don't Forget Interest Costs

June 28, 2010 at 4:15 PM

A recent Heritage Foundation backgrounder would have you believe that President Bush’s tax cuts, two wars, and a new prescription drug program under Medicare “play a relatively minor role in the growth of future deficits.”  Quite the contrary, the tax cuts alone are a huge factor.

In 2019 alone, the Bush-era tax cuts (assuming that lawmakers extend them) plus interest would cost over $700 billion, or more than half of the roughly $1.3 trillion deficit we project for that year if the federal government continues current tax and spending policies.  (Heritage understates the real effect of the tax cuts on the deficit by ignoring the increase in interest payments they cause   The government has to borrow to make up for the lost revenues, which leads to larger debt and higher interest costs.)

This doesn’t mean that we could solve the entire long-term deficit problem simply by letting the tax cuts expire as scheduled.  But it does mean that both sides of the budget — expenditures and revenues, including the tax cuts — need to be on the table when serious conversations about deficit reduction begin.

Heritage’s backgrounder is part of a continuing effort by some critics to absolve President Bush of the blame for current and future deficits and shift attention to other factors, such as the new policies of President Obama and the 111th Congress.  But their arguments don’t add up, as we explain in today’s updated paper.


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