Why we can't afford to extend the Bush tax cuts
The Tax Policy Center鈥檚 that the 鈥渏obs-creating, loophole-closing tax [extenders] bill does little of either.鈥� He notes the irony in claims that these temporary-but-perennial tax cuts (more formally referred to as the extension of 鈥渆xpiring tax provisions鈥�) are fiscally responsible and good (even 鈥渆ssential鈥�) for the economy:
The Joint Committee on Taxation estimates that extending the expiring provisions would reduce federal revenues by $32.5 billion over 10 years. But keep in mind these tax subsidies would all expire鈥攐n paper at least鈥攐ver just a year or two. A more accurate 10-year estimate of the revenue loss (assuming the tax breaks eventually are continued throughout the decade) would likely approach $200 billion鈥�
[W]hile nearly all of the cost of extending the 70 expiring provisions occurs in 2010 and 2011, 90 percent of the revenue to pay for these goodies would not be collected until 2012 and beyond. It isn鈥檛 hard to imagine that much of this money will never materialize, either because the law will be changed or because very smart lawyers will figure ways around it. The overall bill, including the new spending, would add about $140 billion to the deficit. It is hard to be too cynical about tax extenders that have reached a state of near-immortality. But the least Congress could do is to call this annual rite what it is: Continuing tax loopholes, not closing them.
And speaking of the deficit-financed extension of expiring tax cuts being twisted around and artistically re-characterized as 鈥渇iscally responsible,鈥� let鈥檚 bring up my favorite issue鈥搊r more accurately, 鈥減eeve.鈥� I consider the 鈥渕other of all tax extenders鈥� the proposed extension of most of the Bush (2001 and 2003) tax cuts, which is the single most costly deficit-financed policy proposed in President Obama鈥檚 budget. This week the (鈥滵ecision Time: The Fiscal Effects of Extending the 2001 and 2003 Tax Cuts鈥�) that puts the cost of extending the Bush tax cuts in better perspective. The report notes how the deficit-financed permanent extension of these tax cuts (even 鈥渏ust鈥� most of them as proposed by President Obama) would add significantly to the federal debt, bringing it to more clearly 鈥渦nsustainable鈥� levels of around 80 percent of GDP in just ten years鈥揳nd highlights the fact that allowing (just) the top-end rate brackets to expire (continuing tax cuts in full for those with incomes under $250,000) barely saves money relative to the cost of extending the entirety of the Bush tax cuts. Another way the Pew report highlights how costly the Bush tax cuts are is to point out how hard it would be to pay for the extension of the tax cuts by reducing government spending; for example, one way to pay for extending 鈥渙nly鈥� the Bush tax cuts that President Obama proposes to extend would be to cut all mandatory and discretionary federal spending by 5 percent. (If you want to extend all the Bush tax cuts, you鈥檇 have to cut all federal spending by 7 percent.)
The Pew report also suggests that you could make the extension of the Bush tax cuts not so much a 鈥渕other of a鈥� tax extender by extending them for only two years, rather than permanently. But then of course you get back to Howard鈥檚 fundamental question: is there really such a thing as a fiscally-responsible (inexpensive and truly 鈥渆xpiring鈥�) tax extender?
The Pew report doesn鈥檛 really provide any estimates that the hadn鈥檛 already provided; it just more clearly highlights the significance of the policy choice the Obama Administration will make about the Bush tax cuts. uses the CBO numbers on expiring tax provisions another way, to show that under a fiscally 鈥渨orst-case鈥� scenario where all expiring tax provisions currently on the books (including stimulus tax cuts) are permanently extended and entirely deficit financed, these tax cuts would add $6.3 trillion to the ten-year (2010-20) budget deficit, which under current law (assuming all expiring tax provisions actually expire as scheduled) is 鈥渏ust鈥� $6.0 trillion.
So this is a huge deal鈥搕his proposed permanent extension of most of the Bush tax cuts. As this suggests, it is like a 鈥渟prouting leaf of spinach.鈥� How so?
After nervously clearing his throat, Motley was heard to ask, 鈥淲herefore is the National Debt like a sprouting leaf of spinach?鈥� When a glowering Obama demanded the answer, Motley stated, 鈥淔or it shall rapidly grow into something our children cannot bear.鈥�
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