To extend or not to extend, Pew (do you) Trust
by Linda Beale
crossposted with Ataxingmatter
To extend or not to extend, Pew (do you) Trust
The Pew Trust has published a study of the cost of extending the Bush tax cuts: Decision Time: The Fiscal Effects of Extending the 2001 and 2003 Tax Cuts. As surely all ataxingmatter (and Angry Bear) readers are aware, the Bush tax cuts were enacted with sunset dates. Some of those sunsets were 2008 but were extended to 2010. The Bush Congress intended to make the cuts permanent, but knew the price tag would be too high. So instead they used the sunset gimmick to pretend that the tax cut wasn’t really a major cause of increasing deficits.
Now the bill is due. And of course, Congress is today debating an “extender” bill for many of those cuts, that will be financed, at least, by other revenue increases, unlike the original Bush cuts.
Obama’s 2011 budget proposal calls for extending most of the tax cuts –i.e., Obama does not want to let the 2000 rates return as slated under current law for those singles earning less than $200,000 or couples earning less than $250,000. But he’d let the old rates return above those thresholds.
What’s the cost of the Obama extension? A significant $2.3 TRILLION over ten years, according to the Pew Trust report. And debt would extend to 78% of GDP by the end of the 10 years (all else staying the same, which of course it won’t).
If the cuts were allowed to expire as they are slated to do under current law, we’d have $2.3 trillion more in revenue and the debt to GDP ratio would be cut to 68% by 2020.
Why extend tax cuts that do nothing to create jobs?
Let the tax cuts expire and spend the money on job creation.
The wealthy don’t want to pay their fair share of taxes. They want to cut services to the lower and middle class but not the services that they need to make money. End the tax cuts. Say no to the parasites.
Doesn’t the group of people that Obama favors exempting from the sunset provision overlap fairly extensively with swing voters? College educated, white-collar males are, I’d assume, a big part of the extempted group. Unlike college educated, white-collar females, those males tend to vote Republican, but not reliably so.
Not only do many high-income earners not want to pay taxes, but politicians don’t want to ask them to pay.
If obama is staying elected thanks to singles making over 200K or couples over 250K he is pursuing an even more losing strategy than the GOP. Good riddance I say.
“What’s the cost of the Obama extension? A significant $2.3 TRILLION over ten years, according to the Pew Trust report. And debt would extend to 78% of GDP by the end of the 10 years (all else staying the same, which of course it won’t).”
And, since we know that tax cuts or increases have an effect on GDP, holding it constant does not make any sense. GIGO.
“If the cuts were allowed to expire as they are slated to do under current law, we’d have $2.3 trillion more in revenue and the debt to GDP ratio would be cut to 68% by 2020.”
As for the 2.3 trillion in revenue, it would come out of the economy at a time when deflation is a danger, the economy is limping along, and people want to save. Assuming that 230 billion is more or less what would come out of the economy in the first year, does anybody believe that in the current political climate that will be offset by an equivalent increase in spending? Not if the idea is to reduce the debt to GDP ratio. Can our current economy take such a hit?
bakho: “Let the tax cuts expire and spend the money on job creation.”
Unfortunately, we have seen how little the current Congress is willing to spend on job creation. How much will that be in the next Congress with more Republicans in it?
In the long run the Bush tax cuts seem to have produced virtually no meaningful growth, so eliminating them quite likely won’t do much damage. Indeed, I see little evidence that there is any correlation between taxation levels and economic activity over a very broad range of tax levels.
OTOH, increasing taxes during a severe economic downturn seems less than prudent. Especially since — unlike the 1930s — we don’t seem to have that much need for new infrastructure that the government could fund. So, maybe extend the tax cuts for a couple of years, then … good riddance.
Let me see. “The people” want low taxes, low spending, low deficits, a booming economy, unlimitted services, security, research, government contracts in their own districts, and safety-nets. What’s hard about that?
I may not be right, but I will be consistent. I say let all of Dumbya’s tax cuts expire although it will plainly mean that I have to pay more taxes, something I do not like doing, but think is necessary for the sake of my children. While the notion of seeing taxes increase during a period of economic fragility with high unemployment seems counterintuitive, Cactus er Mike Kimel has set forth data suggesting raising taxes is a good thing for the economy at least when we seem to have rates below the “sweet spot”. Of course the decision will be made on the basis of politics not economics.
“OTOH, increasing taxes during a severe economic downturn seems less than prudent.”
On the other hand it is likely that such an increase, really a restoration after what was said to be a temporary hiatus, would reduce the amount of money currently being sequestered by the very welathy. I’d guess that the motivation of the current and past adminsitration has less to do with the behavior of individuals in the $200,000 class. More likely those in the $500,000 and much higher class are the focus. Not because of how they vote, but more because of the available funds they have for the purpose of political contributing.
“Especially since — unlike the 1930s — we don’t seem to have that much need for new infrastructure that the government could fund.”
I’d seriously question that point, but assuming that the infrastructure is fine, what about the wars in the middle east, the rapid defunding of the entire US local school systems, etc.
Imagine, some of us are worried abouot the effect of the wealthiest paying a bit more in taxes, but don’t seem to be too concerned about lay offs all over the country. As though municipal and state workers are sitting around at their jobs doing nothing worthwhile.
“So, maybe extend the tax cuts for a couple of years, then … good riddance.”
That sounds familiar. Let’s not ask the rich to return to the advantageous tax levels they had ten years ago. Why ask those who can best afford to pay a bigger share to do so just because they receive so much more than the rest of the working population? Deep putting off that responsability ini the name of …… In the name of just what rationale was that? There is no good excuse for continuously delaying their financial responsabillity to the government that coddles the rich the way ours always has. In fact that is the only rationale, coddling those that need no additional help.
Raising taxes to keep funding military excursions is not productive. So when is Obama getting us out of there?
Anna defines the baxic problem. Once given it is very hard to take away a gift/entitlement. Tax payers, voters, US citizens expect more. At some point we reach Greece’s level and the whole facade topples. What’s left will be the bare bones of needs. Regretably we are on a path accelerating that day of reckoning.
Here’s a novel idea…cut spending $2.3 Trillion over the next ten years.
That’s a great idea. I suggest starting with the bloated military budget. It shouldn’t be difficult to find a spare trillion or two in that pork barrel. That way we can double the benefitial effect of restoring the tax code to its former self.
I find it interesting that you consider everything I listed as a gift/entitlement. What does this list have to do with Greece? The list, as a whole, is actually an American phenomenon.
I stand corrected!
Jack, I agree! Let’s also take a hard look at the Dept of Ed., Dept. of Energy, EPA, and expecially Agriculture. All are carrying over many inreffective programs. Energy has been totally a waste when compared to its original mission, lower our reliance on foreign oil.
What’s hard about that? The low deficits part, for starters. 😉
CoRev: “Energy has been totally a waste when compared to its original mission, lower our reliance on foreign oil.”
That mission disappeared under Reagan, right?
Alllowing the Bush tax cuts to expire is not only a good idea, it is imperative for the economy to recover. IMO, the disencentives for long term investment created by the lax tax codes, and the immoral behaviour they have engendered, are a cardinal factor in the dysfunction of the US economy. Do the crime if you don’t have to do the time.
Whether the contemporary economists’ want to admit it or not, economics is a social science, not a hard science. The founders welll understood that ” the greatest threat to our Republic is an empowered Aristocracy”. I think we are getting a preview of the future if we do not ensure equitable distribution in our economy.
Taxes don’t “come out of the economy.” In fact with good policies they help the economy a lot more than just sending it to the Cayman Islands does.