Should Congress cut federal spending aggressively in order to lower the national deficit?

Introduction

The report is based on the analysis of research question, “Should Congress cut federal spending aggressively in order to lower the national deficit?”. Budget deficits had become an issue of national concern. The decline in deficits also slowed the increase in size of the national debt. Although the interest payments on the debt still accounted for a significant part of the federal budget, the falling deficits allowed the government to pay off some of the debt. The problem with deficits is that they soak up national savings and crowd out productive investment. Conrad (D, N.D.). Comptroller General David Walker claims that the ballooning national debt brought about by deficit spending will become a huge burden in the future.

Discussion

The run of budget surpluses proved to be short-lived, however. The nation suffered through an economic slowdown that, according to the nonpartisan Congressional Budget Office (CBO), began in 2001. The slump was worsened by the Sept. 11 attacks on the U.S. and a subsequent war on terrorism (Krugman pp. 5). By the end of the 2001 fiscal year, the budget surplus came to $127 billion, far below earlier estimates and a substantial decline from the previous year's surplus. That year, the Bush administration announced that the federal government would run a budget deficit until fiscal year 2005. However, it said that the budget would return to surpluses thereafter.

In June 2001, Bush signed a tax-cut measure that amounted to the most extensive tax relief legislation in a generation. The tax cuts were projected to cost more than $1.35 trillion over the following decade (Krugman pp. 4). Facing an economic slump, Bush pushed the tax cuts as a way to spur economic growth. Such sweeping tax cuts had been the centerpiece of Bush's campaign in his 2000 presidential run against then-Vice President Al Gore. However, at the time, he had proposed paying for the tax cuts by drawing upon the budget surplus. While many people, particularly Republicans, supported the cuts, others criticized them, saying it was reckless to pass such large tax cuts during a period of economic slowdown and shrinking surpluses. In February 2002, Bush attributed the deficit to the cost of the ongoing war on terrorism and to tax cuts that he said were necessary to jump-start the economy. In October of that year, the CBO confirmed Bush's forecast, reporting a deficit of $158 billion for the 2002 fiscal year (Grier pp. 4). In January 2003, Bush proposed another tax-cut package, which he said would boost the faltering economy.

The package called for $670 billion in tax cuts over 10 years. (In March, the nonpartisan congressional Joint Committee on Taxation increased its official cost estimate for Bush's plan to $726 billion.) The centerpiece of the plan was the elimination of the tax on stock dividends, which would amount to $364 billion. In May 2003, the CBO announced its own projections, forecasting a record budget deficit of more than $300 billion for ...