Had the triggers been put in place, the events of 2001 would have started taking the tax cuts apart. Instead, the tax cuts went into effect just as the government spent more money on emergencies. In 2002, the deficit returned at $159 billion. Bush OMB director Mitch Daniels told the nation to relax; “the unexpected surge in revenues toward the end of the last decade was temporary, and that revenues are returning to historic levels for reasons unrelated to legislated change.” In 2003, the deficit grew to $374 billion. That was the year that the Iraq war began, and it was the year that Republicans, back in control of the entire Congress, passed a new tax cut package that accelerated the changes of 2001.
Democrats seemed to have an out. Sure, the Bush rates were incompatible with the costs of war and the welfare state. They would also expire on Jan. 1, 2011, a timeline that reflected the limits of long-term budgeting and made the tax cuts look less costly. They wouldn’t bind a hypothetical future Congress. They’d just bet on the tax cuts being hard to undo. “The idea,” said former Majority Leader Dick Armey—now chairman of the Tea Party group FreedomWorks—“was to get the best we could for the longest we could.”
But some Democrats realized that the tax cuts would be hard to kill. “If you look at most expiring tax cuts, they get renewed,” said John Spratt, formerly the top House Democrat on budget issues, who was defeated in 2010. “I knew if the taxes would expire, someone would eventually say it would hammer the economy, regardless of the condition of the economy. If it was good, it would weaken us. If it was bad, it would exacerbate the problem.”
The 2010 tax extension fight went as Spratt and the rest of them expected. The supercommittee fight was a little more surprising to Democrats. Kerry wasn’t the only one distraught that Republicans wanted to move the goalposts, yet again, to make the Bush tax rates permanent or make them the basis of tax reform. Hadn’t the last decade proved that it wouldn’t work? Didn’t S&P say specifically that its downgrade decision had a lot to do with fear that obstinate Republicans would refuse to let the Bush tax cuts expire?
Sure it did. Yet Republicans had kept the Bush tax cuts alive and unmolested through two wars and an expiration date through sheer stubbornness. They’ve made a series of winning bets. One: They’ll have political clout to revive the tax cuts when the time comes. Two: There’ll be no move away from their mantra that “we have a spending problem, not a revenue problem.” Three: Having got the best possible tax deal in 2001, they can wait to reform the system when they control all the levers of power.
“There’s a low tax, tax reform committee ready, kind of biding their time,” theorized Dick Armey. “There’s a high confidence that we will have a conservative majority of the majority in the House, a conservative majority in the Senate, and a conservative in the White House. And then we’ll have people with whom we can work.”