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What will Congress do about the Bush tax cuts?


Howard Gleckman on the likely end game for the Bush tax cuts:

Unlike most recent congressional debates, the Democrats may have the procedural upper hand this time. With health care, for instance, Republicans would have “won” by blocking congressional action. Gridlock would have preserved the status quo, an outcome favored by about half of voters — and overwhelmingly supported by the GOP base.

But this time, stalemate means the Bush tax cuts expire for everyone. For most households, that will feel like a tax increase — an outcome favored by a handful of budget wonks but very few real people. Democrats believe this will give them the leverage they need to force the GOP to deal. Republicans, by contrast, feel they’d be able to blame the ruling Democrats for failing to tackle the pending tax hike.

My best guess is that, in the end, Congress will extend the Bush tax cuts for all but the highest earners. And it will probably do so for a year or two.

I disagree a bit: At the moment, I'd put my money on a two-year extension of all the tax cuts, including those for the rich. But either way, we're talking about adding $3+ trillion onto the debt, and the Republican position is that we should add even more than that. Meanwhile, we're cutting food stamps to pay for Medicaid.

Graph credit: CBPP

By Ezra Klein  |  July 30, 2010; 10:40 AM ET
Categories:  Budget , Taxes  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   StumbleUpon   Technorati   Google Buzz   Previous: Senate cutting food stamps to pay for Medicaid and teacher funding
Next: GDP grows at 2.4 percent in Q2


mmm extend tax cuts for those that earn over $200,000 per year, or cut food stamps for those that earn less than $25,000 per year. We can either help people eat three meals a day, or help people eat three meals a week at restaurants.

Is there any clearer example of how skewed our system of government is towards looking after the rich, I'm not sure what it is.

Posted by: ChicagoIndependant | July 30, 2010 11:58 AM | Report abuse

I think that the evidence is clear that lower taxes increase productivity and growth in the economy. Not to further confuse the discussion with facts, here is a table from (see Table 1.3):

FY Current $ 2005 $ % GDP
Receipts Receipts Receipts
1999------$1,827.5T $2,136.4T 19.8%
2000------$2,025.2T $2,310.0T 20.6%
2001------$1,991.1T $2,215.3T 19.5%
2002------$1,853.1T $2,028.6T 17.6%
2003------$1,782.3T $1,901.1T 16.2%
2004------$1,880.1T $1,949.5T 16.1%
2005------$2,153.6T $2,153.6T 17.3%
2006------$2,406.9T $2,324.1T 18.2%
2007------$2,568.0T $2,414.0T 18.5%
2008------$2,524.0T $2,288.5T 17.5%
2009------$2,105.0T $1,906.7T 14.8%
2010EST $2,165.1T $1,929.2T 14.8%
2011EST $2,567.2T $2,255.9T 16.8%
2012EST $2,926.4T $2,528.2T 18.1%
2013EST $3,188.1T $2,704.3T 18.6%
2014EST $3,455.5T $2,875.7T 19.0%
2015EST $3,633.7T $2,966.8T 18.9%

As you can see in "real" (current) dollars (not inflation adjusted), the 2001/2003 Bush tax cuts generated higher tax revenues in 2005-2010 (I ignore 2011-2015 since they assume the tax cuts actually expire ... and like you ... at least the cuts for families under $250K will be extended for at least some period).

In in inflation adjusted 2005 dollars, the 2001/2003 Bush tax cuts generated higher tax revenues in 2006-2007 and barely missed in 2008 which was the start of the current recession.

The benefits was the reduction from 20.6% of GDP to 14.8% today shows the lift that lower taxes give to the economy.

I am really incensed when the 2009 deficit is held against Bush; arguably the only huge cost approved for 2009 was the TARP program ... but that money was supposed to be paid back in the 2010-2015 period WITH INTEREST that far exceeded the Treasury's cost of funds (meaning a profit). And that repayments from the banks would have REDUCED the deficit if they had not been re-spent by the Administration for Autos, Housing, etc (where those funds will likely generate huge losses for the taxpayers, not to mention the off-budget help to Fannie/Freddie).

Again, revenues aren't the problem ... it is SPENDING!

Posted by: BeenThere24 | July 30, 2010 12:02 PM | Report abuse

@BeenThere24 : Right....The only reason the economy grew during the Bush administration was people using their houses like atms during the housing bubble (because their wages had stagnated under Bush) and we all saw how that turned out. The bush record is clear.

Massive unprecedented deficits
lowest job creation of any 2 term president since FDR. Net job losses as job creation didn't keep up with population growth
income inequality at levels not seen since the guilded age
salaries stagnant except for the top 5% of all wage earners.
90% of the country's wealth in the hands of the richest 10%.

I bet just about any competent technocrat could do a lot better with a trillion dollars (or whatever the Bush tax cuts cost) to build sustainable economic growth in the US.
Poverty up
uninsured up

That is not a record I would defend.

Wasn't watching the national economy crash and burn enough proof that bushonomics was a complete and utter failure for the bottom 95% of all americans?

Posted by: srw3 | July 30, 2010 12:42 PM | Report abuse

"I disagree a bit: At the moment, I'd put my money on a two-year extension of all the tax cuts, including those for the rich."

Ezra - you are right and I think it will be primarily fault of Dems. Till they have the majority, what they need to do is only allow the bill for voting which cuts taxes for all EXCEPT the rich folks and force GOP to either filibuster that or vote against. People understand that if GOP were for tax cuts at all, they would have at least supported of non-rich. The idea is to portray GOP as the one who will kill 'tax cuts of middle & lower class' for the sake of Rich people.

Will Dems and Obama play such a nerve of game? You are right that they are unlikely. Dems and Obama are not creative here. Compared to Bill Clinton, this batch of Dems are simply 'too weak' to pull off this 'hard ball game'.

Here is an opportunity for Obama to manifest his 'inner resolve'; but same like you we do not have any faith in that.

Posted by: umesh409 | July 30, 2010 1:02 PM | Report abuse

"... the Republican position is that we should add even more than that."

Actually the Republican position will be, no extension equals 'Biggest Tax Increase in History!!!'

We've been there before. The Kabuki is well known.

Posted by: leoklein | July 30, 2010 1:09 PM | Report abuse

Year Unemployed %
1999 4.2
2000 4.0
2001 4.7
2002 5.8
2003 6.0
2004 5.5
2005 5.1
2006 4.6
2007 4.6
2008 5.8
2009 9.3

Last recession was from Aug 00 to Mar 03. Let's see what happened during that time:

- Dot Com Bubble Burst during the end of the Clinton years
- 9/11/01 Terror Attacks on NYC and WASHDC
- Oct 01 start of war in Afghanistan (and the routing of the Taliban and Al Qeada)
- Mar 03 start of war in Iraq
- 2003 - current constantly low and falling interest rates that allowed the housing bubble to inflate

The economy starting coming out of recession starting in 2003 (hard to determine if the war spending, Medicare Part D or tax cuts had greatest impact ... just as now when studies indicate a difficulty in determining how great of an impact the stimulus spending bill had after ALL of the other Government intervention in 2008-2010).

Historically, 5% has been the key target for "full employment" so both the Clinton and Bush II numbers were in the ballpark. So I don't really get your comment that Bush didn't create jobs (when unemployment fell from the end of the last recession to the latest recession).

Posted by: BeenThere24 | July 30, 2010 1:51 PM | Report abuse

swr3: And how was the "wealth effect" caused by the housing bubble during the Bush years any different than the "wealth effect" caused by the Dot Com bubble of the Clinton years.

Both were temporary increases in wealth that were more illusory than anything else.

I agree that people used their houses as ATMs with constant "money out" refinancing and HELOCs, spending that money on more "things" rather than on investments. But the people that did buy "things" received something for their home equity (those of us that didn't cash out didn't get ANYTHING but higher property taxes!).

But isn't the Government now just buying "things" or "services", rather than true infrastructure investments that are worth something in the future (like bridges, roads, buildings, etc.)?

What data (and Government source) do you base your views on?

Posted by: BeenThere24 | July 30, 2010 1:57 PM | Report abuse

I predict all tax cuts will expire and Obama will get blamed for raising taxes on those earning less than $250,000.00, thereby breaking his pledge.

Conservatives will avoid no opportunity to cause suffering if they think they can capitalize on it politically.

Posted by: lauren2010 | July 30, 2010 2:18 PM | Report abuse

I'm having trouble believing that BeenThere24's first post isn't sarcasm.

He suggests that we should look at nominal dollars, not inflation-adjusted dollars to see how revenues are increasing with tax cuts. But he posts the inflation-adjusted numbers anyway, proving how dishonest looking at non-adjusted numbers is. Many a right wing hack will use nominal dollars to make an argument when it is nonsensical to do so, but they won't generally provide more relevant data that disproves their point.

He also posts 2011-2015 data, showing how expiration of the cuts would lead to surging revenue, which again would disprove his central point.

He suggests that falling revenue as a % of GDP proves that low taxes are lifting the economy...the economy must have grown a ton in 2009, as receipts fell from 17.5% to 14.8% (brain explodes).

He suggests that the 2009 deficit can't be held against Bush because the only source of '09 deficit attributable to Bush is the TARP program, but he mentions in the '01 and '03 tax cuts in the post, and posts numbers proving they added significantly to the '09 deficit. He doesn't mention any of Bush's permanent and unfunded spending programs like Medicare D or his wars, but he has to know readers would be aware of them.

He suggests that spending is the source of our deficits, when his numbers show plummeting revenues. We have a 1.5 trillion dollar deficit, and discretionary spending has only increased about two hundred billion over the past few years (which is largely due to temporary stimulus spending).

Posted by: eggnogfool | July 30, 2010 4:11 PM | Report abuse

This is the static analysis assuming identical economic growth in each case.

Read Romer's research.

Posted by: cdosquared5 | July 30, 2010 5:34 PM | Report abuse


Here is GDP data covering the Clinton years as well as the Bush years (from

year nominal real
---- GDP GDP
1990 5,800.5 8,033.9
1991 5,992.1 8,015.1
1992 6,342.3 8,287.1
1993 6,667.4 8,523.4
1994 7,085.2 8,870.7
1995 7,414.7 9,093.7
1996 7,838.5 9,433.9
1997 8,332.4 9,854.3
1998 8,793.5 10,283.5
1999 9,353.5 10,779.8
2000 9,951.5 11,226.0
2001 10,286.2 11,347.2
2002 10,642.3 11,553.0
2003 11,142.1 11,840.7
2004 11,867.8 12,263.8
2005 12,638.4 12,638.4
2006 13,398.9 12,976.2
2007 14,061.8 13,228.9
2008 14,369.1 13,228.8
2009 14,119.0 12,880.6

Contrary to Republican predictions that the Clinton tax increase would destroy the economy, real GDP grew at an annual rate of 3,87% between 1992 and 2000. In contrast, real GDP grew at only 2.07% from 2000 through 2008. Even if we cherry pick Bush's numbers by looking at the period from 2001 through 2007, we still get only a 2.59% annual growth in GDP. In short, the economy grew faster after the Clinton tax increase that after the Bush tax cut. Why you consider this to be "clear evidence" that cutting taxes increases economic growth is beyond me.

Posted by: KennethAlmquist | July 31, 2010 12:16 PM | Report abuse

Do I read this graph correctly that there was a constant deficit of 30-40% during the entire 2000-2010 period? That would appear to scream that tax cuts do not pay for themselves.

I do recall that the Clinton projections were for surpluses during the 2000-2010 period that would have paid down entire fed debt. Around 2001, Alan Greenspan was worried that Fed debt would fall too much. It was the Repubs who suspended Paygo in 2001 and Dems who re-instated it in 2007. Dems are not perfect and have about 20-30% as useful idiots in Congress. But that is better than the Repubs at over 90% useful idiots. They can not vote for medical aid for 911 responders because the procedures were not to their liking. Just pathetic.

I believe back in the 70s that Repubs argued to reduce top tax rates and then re-capture revenue in the estate tax. That was so that earners of wealth would get rewarded while they were alive. Now repubs want to keep top rates low and eliminate the estate taxes. Seems like just one excuse after another to favor the wealthy.

Also, I have noticed that the Repubs never talk about tax cuts for SSI withholding which has been in surplus for the last 40 years. They only focus on tax cuts for the wealthy, the corporations and general revenues even though that side has been in deficit for most of those same years.

Just where is there any reason or rationality in their approach? I will grant they are consistent in favoring their base, the haves and the have mores per W.

Or as Cheney said so well that Reagan proved deficits do not matter. Apparently that is only for Repub administrations. Reagan campaigned on three parts: cutting taxes, increasing defense spending and balancing the budget. Everyone said the first two were popular and easily passed. The trick or voodoo aspect was accomplishing the third, the balanced budget. Oh but Dems controlled the Congress some supporters will say. But Reagan never submitted a balance budget, not once in 8 budgets. Reagan had to raise taxes numerous times to hold deficits down. As per numerous editorials, Reagan could not pass the litmus tests being trotted out today by many Repub and conservative groups.

Finally, I notice a new spin which is that its the wealthy that produce jobs. I always heard that capitalism was based on Supply and Demand with demand coming first. Then capital would fund factories, companies and jobs to supply that demand. No demand means no need for any added or new supply and capital sits on the sideline. But then again, I am just an average Joe and not a great pundit like Brit Hume and other Repub and conservative shills.


Posted by: jimk37 | August 1, 2010 5:32 PM | Report abuse

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