In 2001 and 2003 President Bush made large tax cuts for all classes of society – lower, middle, and wealthier classes. Given the dire fiscal circumstances the country faced in 2010 – with a deficit of $1.9 trillion in 2009 and national public debt of $8.6 trillion – President Obama and others proposed letting the Bush tax cuts expire on the top 2 to 3 percent of American households (couples making more than $250,000 a year, individuals making more than $200,000). They would be permanently extended for everyone else. This would generate $700 billion in tax revenue from the wealthiest 2 to 3 percent every year after implementation, helping cut the deficit by that same amount. This is the main rationale leveled by supporters of expiring the Bush tax cuts to the rich in 2010. But, opponents say that doing so while the economy struggles to recover would risk a double-dip recession. There are many arguments back and forth on these points, and they are documented below.
“Tax cuts for low-, middle- and upper-middle-income taxpayers should be temporarily extended because those taxpayers tend to spend most of their income and the economy needs consumer spending. That would cost roughly $140 billion next year, but the spur to the economy is more important than the budgetary impact. […] Tax cuts for the rich can safely be allowed to expire because wealthy taxpayers tend to save rather than spend their tax savings. The revenue from letting these expire — nearly $40 billion next year — would be better spent on job-creating measures.”
“President Obama has proposed to eliminate the massive deficit-busting Bush tax breaks for the top 2 percent of Americans — while maintaining tax cuts for 95 percent of Americans. He is spot on. […] The Bush tax breaks are set to expire at year’s end, so there is real pressure on Congress to act. Congress should maintain the cuts for individuals earning $200,000 or less, and families earning $250,000 or less. And it should restore the Clinton-era tax rates to the very rich. […] It is the right thing to do economically, politically and morally.”
“And where would this $680 billion go? Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 a year. But that’s the least of it: the policy center’s estimates say that the majority of the tax cuts would go to the richest one-tenth of 1 percent. Take a group of 1,000 randomly selected Americans, and pick the one with the highest income; he’s going to get the majority of that group’s tax break. And the average tax break for those lucky few — the poorest members of the group have annual incomes of more than $2 million, and the average member makes more than $7 million a year — would be $3 million over the course of the next decade.”
Revenue coming from higher taxes on the rich can be reinvested into the economy to stimulate growth, instead of just sitting in the bank accounts of the wealthy. Now, it is true that some wealthy will directly invest this money. But, certainly not all do so. Taxing and reinvesting that money assures that it re-circulates around the economy.
“The Republicans charge that eliminating these tax breaks on the rich — and returning them to Clinton-era levels — would be a ‘job-killing tax hike in the midst of a recession.’ Let’s recall that while the Clinton-era tax rates applied to the rich in the 1990’s, the economy created more than 22.5 million jobs in less than eight years — the most jobs ever created under a single administration. Moreover, the Federal deficit had turned into a surplus for as long as the eye could see. The number of private sector jobs created during the Bush years: zero.”
Budget Committee Chairman Kent Conrad of North Dakota: “As a general rule, you don’t want to be cutting spending or raising taxes in the midst of a downturn.”
Sarah Palin said in early August 2010 on Fox News Sunday that it is “idiotic to think about increasing taxes at a time like this” and that cutting them will “lead to even fewer job opportunities for Americans.”
CBO Director Douglas Elmendorf told CNN: “[It would provide] a considerable boost to economic activity in 2011 and beyond for a few years.” This is precisely when the economy needs such a “considerable boost.” While it is true that he then said, “Over time, [however,] the negative consequences of very high federal borrowing build up,” extending the tax cuts should be seen as a short-term thing; something that would be ended as soon as the economy has had a chance to recover (within a couple of years). This means helping stabilize the economy, while taking measures to address the longer-term deficit problems in the nation.
2010 Congressional Budget Office Report: “CBO assumes that tax reductions enacted earlier in this decade that are currently set to expire at the end of this year do so as scheduled; … Under those assumptions, the federal budget deficit would decline substantially over the next two years—to 4.2 percent of GDP in 2012—and, consequently, the budget would provide much less support to the economy than has been the case for the past two years… CBO projects that the economy will grow by only 2.0 percent from the fourth quarter of 2010 to the fourth quarter of 2011; even with faster growth in subsequent years, the unemployment rate will not fall to around 5 percent until 2014.”
Budget Committee Chairman Kent Conrad of North Dakota: “We know that very soon we’ve got to pivot and focus on the deficit. But it probably is too soon to cut spending or raise taxes.”
“The Bush tax cuts were a huge success. Failing to extend those for all Americans — not just families earning less than $250,000 — would be a terrible mistake. Contrary to the propaganda coming out of the White House and the Treasury, George Bush achieved a lot of growth the first seven years of his presidency by deregulating the economy and cutting taxes.”
“If, as proposed, the Bush tax cuts are allowed to expire for the highest earners, the vast majority of small businesses will be unaffected. Less than 2 percent of tax returns reporting small-business income are filed by taxpayers in the top two income brackets — individuals earning more than about $170,000 a year and families earning more than about $210,000 a year. And just as most small businesses aren’t owned by people in the top income brackets, most people in the top income brackets don’t rely mainly on small-business income: According to the Tax Policy Center, such proceeds make up a majority of income for about 40 percent of households in the top income bracket and a third of households in the second-highest bracket. If the objective is to help small businesses, continuing the Bush tax cuts on high-income taxpayers isn’t the way to go — it would miss more than 98 percent of small-business owners and would primarily help people who don’t make most of their money off those businesses.”
A 2010 Congressional Budge Report Found: “Increasing the after-tax income of businesses typically does not create much incentive for [small businesses ] to hire more workers in order to produce more, because production depends principally on their ability to sell their products.” In other words, if you’re worried about the fragile state of the economy and you want to do something to make sure recovery is not set back, there are any number of more effective ways to spend that money. Continuing to help states pay their Medicaid bills would be one.
“The ‘supply side experiment’ turned out to be a colossal failure. For eight years, George W. Bush applied the theory in its purest form: increase tax breaks to the rich, eliminate regulations on Big Oil, insurance companies and Wall Street. The results are there for everyone to see. The New York Times reported last year that, ‘For the first time since the Depression, the American economy has added virtually no jobs in the private sector over a 10-year period. The total number of jobs has grown a bit, but that is only because of government hiring.’ In fact, since George Bush and the Republicans in Congress passed two massive tax cuts, we have seen a massive, secular decline in the creation of private sector jobs.”
“the rich used the Bush Tax Cuts to create the gigantic economic “bubble” that ultimately burst and caused immeasurable hardship and suffering to millions of average Americans and everyday people across the globe.”
“Obama’s proposals could put thousands of small-business owners in a tax bracket higher than America’s corporate giants. The top tax rates would rise from 33 and 35 percent today to 36 and 39.6 percent in January. The millions of small-business owners who file income taxes as individuals could pay rates higher than Exxon Mobil or Goldman Sachs. Where’s the wisdom in that when small businesses create most American jobs – and need help, not hindrance?”
“Americans in the top bracket run companies, start new businesses, launch innovative products and hire other Americans to perform these positive functions. While Democrats routinely denounce “the rich” as if they were un-American, the sad truth is that very few poor people create jobs.”
“Less than 5% of the subchapter-S companies — small businesses that have less than 100 shareholders and pay individual income taxes — made more than $200,000 in 2007. That 5% packs quite a wallop, though, accounting for more than two-thirds of tax receipts in the top two brackets and representing the wealthiest hedge funds, law firms and lobbying outlets in America, all of which file individual or partnership income taxes, according to IRS statistics.”
“What’s at stake here? According to the nonpartisan Tax Policy Center, making all of the Bush tax cuts permanent, as opposed to following the Obama proposal, would cost the federal government $680 billion in revenue over the next 10 years. For the sake of comparison, it took months of hard negotiations to get Congressional approval for a mere $26 billion in desperately needed aid to state and local governments.”
The Bush tax cuts were supposed to be abnormal, a temporary boost to the economy. Ending them merely returns taxes to ordinary, sustainable levels. Therefore, ending them should not be seen as a “tax increase” per se, but just a return to normalcy.
The Bush tax cuts were designed to expire for a reason. They were never seen as a permanent fixture, even by those that created them, but as a way to boost the economy. They were supposed to expire, and so the proposal to extend all of them except for the rich is generous.
When asked in July if the House leadership would consider a bill to extend all of the Bush tax cuts, as Republicans and some Democrats have advocated, Nancy Pelosi said, “No. No. Our position has been that we support middle-income tax cuts. The tax cuts at the high end have increased the deficit enormously.”
“As it happens, with the so-called Bush tax cuts of 2001 and 2003 set to expire at the end of this year, both parties have a chance to do something about the deficit simply by doing nothing. So are they prepared to seize this rare opportunity? Hardly. President Obama and most Democrats want to extend those tax cuts — which slashed marginal rates as well as taxes on dividends and capital gains — for all but high-income households. Never mind that most Democrats voted againstthe cuts in the first place, or that the economy had been flourishing before they were enacted.”
“Republicans, for their part, are not satisfied with extending most of the tax cuts. They want to extend them all. Never mind that these are the very people who turned a budget surplus into a $5 trillion mountain of debt during the Bush presidency and whohave been making the most noise about the deficit recently.”
“The Republicans are insisting on extending each and every one of the tax cuts forever. It is impossible to square that demand with their calls to reduce the deficit, so they do not even try.”
“The best approach, though the least likely, would be to put aside the political maneuvering and do what is in the nation’s long-term interest. That would be to let the tax cuts expire — first for the wealthy and more gradually for everyone else — then couple that move with large-scale spending cuts in a two-pronged attack on the deficit.”
Eric Cantor: “If you have less revenues coming in to the federal government, and more expenditures, what does that add up to? Certainly you are going to dig the hole deeper, but you also have to understand if the priority is to get people back to work, is to start growing this economy again, you don’t want to make it more expensive for job creators.”
“He must know that to put off raising taxes on the rich for one year would add $36 billion – peanuts in his circle – to the deficit. It’s not going to close the gaping hole, but it could scare private-sector employers who are considering hiring. Especially when there are whispers from Washington that Obama is drafting another huge economic stimulus package.”
“4. The Bush tax cuts are the main cause of the budget deficit. […] Although the cuts were large and drove revenue down sharply, they are not the main cause of the sizable deficit that exists today. In 2007, well after the tax cuts took effect, the budget deficit stood at 1.2 percent of GDP. By 2009, it had increased to 9.9 percent of the economy. The Bush tax cuts didn’t change between 2007 and 2009, so clearly something else is to blame. […] The main culprit was the recession — and the responses it inspired. As the economy shrank, tax revenue plummeted. The cost of the bank bailouts and stimulus packages further added to the deficit. In fact, an analysis by the Center on Budget and Policy Priorities indicates that the Bush tax cuts account for only about 25 percent of the deficit this year.”
“For my part, I don’t want to hear another conservative pundit call for more tax cuts until the there’s a closure of the gap between what Washington takes in and what it promises and spends. If that day never comes, well, someone has to pay for the party. Rep. Paul Ryan of Wisconsin stands out as the rare Republican willing to challenge the Democrats’ “culture of dependency” by proposing painful cuts on Social Security, Medicare and Medicaid spending. He, at least, is willing to tell the middle class that entitlement spending is “unsustainable.” Ryan is the adult in this room. As David Walker, head of the Peter G. Peterson Foundation and former U.S. controller, told The Chronicle’s Carolyn Lochhead last week, ‘If you eliminated all the Bush tax cuts, if you withdrew from Iraq and Afghanistan tomorrow, if you eliminated foreign aid, and if you eliminated all spending associated with congressional earmarks – the populist things – it’s about 15 percent of the problem.'”
“Democrats can’t claim to be the fiscally responsible party if they keep proposing to raise spending on the backs of just 2 percent of the population. That too is ‘unsustainable.'”
“The Republican position amounts to nothing more than baseless pandering to the greed of their many wealthy donors.”
“SENATE REPUBLICANS, committed as they are to preventing the debt from mounting further, can’t approve an extension of unemployment benefits because it would cost $35 billion. But they are untroubled by the notion of digging the hole $678 billion deeper by extending President Bush’s tax cuts for the wealthiest Americans.”
Former Fed Chairman Alan Greenspan said on Sunday’s Meet the Press that extending the Bush tax cuts without offsetting the costs elsewhere could end up being “disastrous” for the economy. “I’m very much in favor of tax cuts but not with borrowed money and the problem that we have gotten into in recent years is spending programs with borrowed money, tax cuts with borrowed money.”