Tax Cuts Do Not Pay For Themselves

August 14th, 2010

With the Bush tax cuts about to expire and Democrats planning to make the argument over extending Bush tax cuts for the rich a key to their positioning for the November elections, there has been an increased focus on the effects of all of Bush’s tax cuts.

In defending the extentions the Republicans have backed themselves into a bit of a rhetorical corner. Specifically, they just spent two years complaining incessantly about the $9 trillion dollar deficit that Obama has somehow created in just two years (as if they were asleep during the previous 8 years) and now they are proposing to continue the tax policies that have significantly contributed to those deficits. In an attempt to justify this irresponsible policy, a number of Republicans have fallen back on the familiar supply-side argument from the Reagan years that “tax cuts pay for themselves.”

In addition to this general statement, I have also heard from some Republicans recently that “there was no revenue problem” during the Bush years and that if spending hadn’t increased at the time, Bush would have been able to balance the budget. While that may be technically true, it fundamentally ignores the fact that the Bush tax cuts tacked on an additional trillion and a half to a budget that was aleady bloated by recession and two wars (wars that almost all Republicans supported).

A few minutes of Google research was enough to dispel the fantasy that tax cuts pay for themselves. Studies by both the liberal Center on Budget and Policy Priorities and the free market Heritage Foundation have both pegged the cost of the Bush tax cuts at close to $1.7 trillion over a ten year period. Even the most conservative estimates of the stimulative power of the tax cuts assume that they would have created a 25% increase in tax revenues during that period, making the cost of those tax cuts at least $1.3 trillion (if not more).

Going forward, the cost of extending the Bush tax cuts for all income brackets is estimated at $3 trillion over 10 years.

So now Republicans–who complained seemingly non-stop for two years about how Obama had created trillion dollar deficits–are in the position of running for office on a plan to keep all the Bush tax cuts in place, but not providing any plan to offset the estimated $3 trillion revenue loss.

This dichotomy was on display pretty dramatically on Meet the Press last Sunday. The week before David Gregory had Alan Greenspan on and had asked the former Fed Chairman if he favored extending the Bush tax cuts. “I’m very much in favor of tax cuts but not with borrowed money” he said, “and the problem that we have gotten into in recent years is spending programs with borrowed money, tax cuts with borrowed money; and at the end of the day that proves disastrous.”

Gregory probed more: “you don’t agree with Republican leaders who say tax cuts pay for themselves?”

“They do not,” replied Greenspan. 

When Boehner was on last Sunday, Gregory played Greenspan’s clip from the week before and asked him how he could be concerned about the deficit, but at the same time in favor of extending the Bush tax cuts indefinitely.

“Do tax cuts pay for themselves?” Gregory asked.

Boehner was evasive, but Gregory kept at him until he burst out that Gregory wanted to “get into this Washington game…and their funny accounting over there.” 

Nice try Boehner, but this isn’t a Washington game, and it’s not a trick question to ask if you have a plan to pay for the $3 trillion in tax cuts that you are proposing, especially if you just spent the past two years blaming Obama and Pelosi for the deficit.

We just finished a long debate over the health care reform bill and the Republicans’ main argument was that we couldn’t afford to move toward universal health care and that they didn’t like (or believe in)  the way it was financed. That’s fair enough, I didn’t like how it was financed either, but it was financed, which is more than we can say about extending the Bush tax cuts, or the Medicare prescription drug benefit that the Republicans passed under Bush.

We are closing out 30 years of history in which the Republicans have consistently said that they would cut government, but when push came to shove, just cut taxes and let government increase in size. Does anyone think that we should just trust these guys to do the right thing this time?…and more importantly, if anyone does believe that they have a plan to balance the budget, don’t we deserve to know what that plan would look like?

As I’ve said before, I think that there are good arguments to maintain low taxes for the next couple of years to stimulate the economy (I would rather see the income tax cuts be replaced by a short-term payroll tax holiday), but we are facing a $9 trillion deficit over the next ten years and neither party seems serious about the changes that will need to be made. Canceling  the tax cuts would slash that deficit by one third overnight and make the job of deficit reduction significantly less daunting.

Americans need to understand that hard choices (on both benefits and taxes) need to be made, and we should have a debate that illuminates this reality. The politicians are doing what they always do. Obama promised not to raise taxes on the middle class, so he’s in favor of extending the tax cuts for everyone but the top 2%. Republicans like low taxes more than they hate deficits, so they’re in favor of adding on another $700 billion over 10 years for the top 2% (while they filibuster jobless benefits because “we can’t afford them”). Both sides complain about deficits, but both sides are also in a mad dash to stuff the budget full of their individual priorities before they have to start negotiating on what programs to cut and what revenues to raise.

The country deserves a debate on bigger issues instead of a narrow debate along the partisan lines that the parties have layed out. We deserve a rare outbreak of candor from our politicians. 

This may be to much to ask right now, but dispensing with the canard that “tax cuts pay for themselves” is a good start.

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2 Responses to “Tax Cuts Do Not Pay For Themselves”

  1. shona Says:

    “We deserve a rare outbreak of candor from our politicians. ”

    Totally agree. Go Milazz. : )

  2. Nenita Auer Says:

    Whether you like the man (George W. Bush) or not, most people would agree that raising taxes in a recession is a bad idea. If you’re one of the people who thinks it’s fine because it doesn’t affect you, think again. If you have a job (or even if you don’t) it affects you because it affects people that employ people. One way or the other, everyone pays for a tax hike.