Deficit hawks would let the Bush tax cuts expire

Posted by AzBlueMeanie:

Fareed Zakaria weighs in on the "deficit peacocks," as they have been dubbed — conservatives who showed no concern for deficits incurred during the Bush years for tax cuts to corporations and the rich, for a Medicare Part D prescription drug subsidy to big Pharma, and for putting two wars on America's credit card, but who are now concern trolls over necessary deficit spending to get the nation out of the worst economic slump since the Great Depression. To deal with the deficit, let the tax cuts expire:

For the past few months, we have heard powerful, passionate arguments about the need to cut America's massive budget deficit. Republican senators have claimed that we are in danger of permanently crippling the economy. Conservative economists and pundits warn of a Greece-like crisis in which America will be able to borrow only at exorbitant interest rates. So when an opportunity presents itself to cut those deficits by about a quarter — more than $300 billion! — permanently and relatively easily, you would think that these people would be leading the way. Far from it.

The "Bush tax cuts," passed in 2001 and 2003, remain the single largest cause of America's structural deficit — that is, the deficit not caused by the collapse in tax revenue when the economy goes into recession. The Bush administration inherited budget surpluses from the Clinton administration. What turned these into deficits, even before the recession? There were three fundamental new costs: the tax cuts, the Medicare prescription-drug bill and post-9/11 security spending (including the wars in Iraq and Afghanistan). Of these the tax cuts were by far the largest, adding up to $2.3 trillion over 10 years. According to the Congressional Budget Office, nearly half the cost of all legislation enacted from 2001 to 2007 can be attributed to the tax cuts.

Those cuts are set to expire this year. Republicans say they want to keep them all, even for those making more than $250,000 a year (less than 3 percent of Americans), because higher taxes will hurt the recovery. But for months Republicans have also been arguing that the chief threat to the economy is our gargantuan debt and deficit. That's what's scaring consumers, creditors and businesses. Yet given a chance to address those fears by getting serious about deficit reduction, they run away. By contrast, British Prime Minister David Cameron, a genuine fiscal conservative, concluded that to deal with his country's deficit, which in structural terms is not so different from America's, he would have to raise taxes as well as cut spending.

Democrats, for their part, are also running scared, proposing to keep all the tax cuts except those affecting the very rich. But they were opposed to these tax cuts in 2001 and 2003. If they were a bad idea when budget deficits were small, why are tax cuts a good idea when deficits are around $1.3 trillion?

The idea that the average American is overtaxed is a nice piece of populist pandering. In fact, federal taxes as a percentage of the economy are at their lowest level since the Truman administration. Chuck Marr and Gillian Brunet of the Center on Budget and Policy Priorities have calculated that a family of four at the exact middle of the income spectrum will pay only 4.6 percent of its income in taxes. Remember, almost half of the country pays no income taxes at all. The top 2 percent of Americans contribute almost 50 percent of federal income taxes.

The simple facts are these: All of the Bush tax cuts were unaffordable. They were an irresponsible act of hubris enacted during an economic boom. Conservatives thought they would force us to shrink the government. But with Republicans controlling the White House and both houses of Congress, did reduced taxes cause reduced spending? No. They led to ever-increasing borrowing and a ballooning deficit.

We have one of the smallest governments among all the world's rich countries. Yet we refuse to pay for it. (Yes, health-care spending is the big exception and, yes, we will have to get those costs under control.) I understand the fear that this is not a good time to raise taxes. But the impact of marginal shifts in tax rates on growth is pretty unclear. Bill Clinton raised taxes in 1992 and ushered in a period of extraordinarily robust growth. George W. Bush cut taxes massively in 2001 and got meager growth in return. Three tax cuts enacted since the financial crisis have done little to spur growth. In any event, if timing is the issue, Congress could extend all the tax cuts for a year but then let them expire. Better yet, spend money on far more efficient ways to spur job creation, such as tax credits for jobs, which the Congressional Budget Office estimates would create four to six times as many jobs as would tax cuts.

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In front of us is a simple, easy way to bring America's fiscal house in order, reduce our dependence on foreign borrowing, restore U.S. credibility and power, and provide a stable revenue base from which to make key investments for future growth. All we need is for Congress to do what it does so well: nothing.

Instead, the GOP talking point is that the Democrats are going to impose "the largest tax increase in history." Well, no actually. As I have explained previously, it was the GOP's "Gimmicks-R-Us" shop that put a sunset provision in the Bush tax cuts so that they could get around the reconciliation rules in order to pass the Bush tax cuts. It was Republicans who created this "time bomb" if you will, with the idea that they would renew the Bush tax cuts if they were in power, or browbeat weak-willed Democrats (i.e., bluedog conservatives) into renewing the Bush tax cuts with the fear mongering that we are now seeing. The Republicans built this Rube Goldberg contraption, it is Republicans who own any resulting tax increase if and when their "time bomb" goes off.

The fact of the matter is that the president has proposed retaining the Bush tax cuts for those earning under $250,000. A CNN fact check from the 2008 campaign concluded Checking facts: Will Obama raise small biz taxes?:

Out of 34.7 million filers with business income on Schedules C, E or F, 479,000 filers fall into the top two brackets, according to an analysis of projected 2009 filings by the nonpartisan Tax Policy Center.

The other 34.3 million – or 98.6% – would be unaffected by Obama's proposed rate hike.

That's right, less than two percent of taxpayers in the top two tax brackets would be affected by the Obama tax plan. You would never know this from the fear mongering emanating from Republicans.

What Republican strategists are planning to do is to filibuster the Obama tax plan in the Senate so that they can argue that all of the tax cuts will expire at the end of the year during the fall campaign. (A lame duck session of Congress would address the tax bill after the election). Bush-Era Tax Cuts Likely Election Theme – WSJ.com Once again, partisan politics and serving the interests of their corporate overlords and the über-rich investor class — the "two percenters" — is more important to Republicans than the well-being of the American middle class. Extending the Bush tax cuts in their entirety would explode the federal deficit over the next ten years.

You may recall that President Clinton raised the marginal tax rate on the top three percent of income earners in 1993. The gloom and doom forecasted by Republicans never materialized. Instead, it resulted in the longest sustained period of economic growth in the post-war era, as well as produced budget surpluses that were used to pay down the national debt and to shore up the social security and medicare trust funds. Allowing the Bush tax cuts to expire for the "two percenters" (or Clinton's three percent) would simply return the marginal tax rates on the über-rich to what they were under President Clinton. I seem to recall that the rich did pretty damn well under Clinton.