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The Long, Slow March Toward Supercommittee's Crisis

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Lawmakers have spent much of this year struggling to reach a deal that could get budget deficits under control. But the problem has been developing for at least a decade.

Young voters might not be familiar with the government of the year 2000 — at least not by its balance sheet. The economy: booming. Tax revenue: rolling in. Expenses for war: none. And to top it off, there was a $200 billion surplus.

"We had Allen Greenspan, the chairman of the Fed, openly fretting that we would pay down all of our debt and that could lead to terrible economic consequences," said Norm Ornstein of the American Enterprise Institute, a conservative think tank.

But a lot happened in the first two years of George W. Bush's presidency. He said his first order of business was giving back the surplus by cutting taxes. Then came the Sept. 11 attacks, the war in Afghanistan and a spike in government spending on domestic security.

In 2002, the economy slid into a recession, so President Bush and Congress supported another tax cut — this one to stimulate spending by businesses. By the end of that year, the surplus was gone and the government began running up the credit card.

In Bush's State of the Union address in early 2003, he warned of rising unemployment and outlined his plan to get people working: "Jobs are created when the economy grows, the economy grows when Americans have more money to spend and invest, and the best and fairest way to make sure Americans have that money is not to tax it away in the first place."

By this time, though, some lawmakers had begun to worry. The centerpiece of this tax cut was a reduction in capital gains taxes, and a lower rate for investment income — both targeting wealthier Americans.

Democrats, led by Rep. Nancy Pelosi, called it reckless.

"It is fiscally irresponsible, it does not create jobs, it is not fair, and the voters will know about that," Pelosi said.

Congress was already spending more money than it was taking in. Cutting taxes again would make that worse.

Ornstein says fiscal hawks didn't like it. "You had not just Democrats but a lot of independent observers saying, 'Hey, look, this is a huge drain on revenues.' And guess what? It was a huge drain on revenues."

The Bush administration appeared to be on the brink of invading Iraq — a second war to fund.

That made Republican Sen. John McCain uneasy: "Let us wait until we have succeeded in Iraq, and until we have some idea of what percentage of the cost of the aftermath of those hostilities we will have to bear."

Support for it in the Senate was so weak, Republican leaders had to use an arcane budget process to push it through. But that meant the cuts had to have a lower price tag, so the Bush administration made the cuts sunset — in other words, they would expire later in the decade. It appeared as though the cuts would cost the Treasury some $350 billion.

But if they were to be extended, says analyst Ornstein, "Every economic forecast from the Congressional Budget Office on down showed that it would lead to a bleeding of federal revenues, and immense deficits larger than anything we had ever seen."

And if there was any doubt about Republican plans for the cuts, President Bush made them clear in his next State of the Union address: "What Congress has given, the Congress should not take away — for the sake of job growth, the tax cuts you passed should be permanent."

Republicans are still working on that. In recent years, deep recession, stimulus spending and ongoing war have made America's budget outlook much, much worse. All the while, those tax cuts have been extended.

They have become the biggest stumbling block in lawmakers' attempt to fix the long-term budget problem. Republicans want to make them permanent, while Democrats want to finally let some, or all of them, sunset.

Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.

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