Deficit Reduction: Cleaning Up After the Bush Tax Cuts - Part Two

Deficit Reduction: $400 Bn Annually

[$4-5 Tn in 10 years]

Mechanism: Increased GDP Growth

[Increased Tax Revenue]

The Tax Cuts That Wouldn't Die

Maybe if it were only a few hundred billion, it wouldn't bleed as much.

Bush Tax Cuts - The Undead [image]

For those of you who enjoy zombie movie re-runs, the endless history of the Bush tax cuts should have a special appeal.  The law was originally designed to "vaporize itself" in the "sunset" after ten years of economic terror, but every time we seemed to be getting close to finally driving a stake through the thing's heart, Republicans have dug in their heels to breathe life back into it at the last minute.

The series of techniques employed for these stubborn, desperate resuscitations have grown more and more extortive and violent with each episode.  The already illegitimate House "majority" has not so much as even blushed as they have attempted to "lock" the debt limit, cancel unemployment insurance benefits and food stamps after they wrecked the economy, default on the national debt, shut down the government and more.

However irritating and destructive these tactics have been, the accompanying incendiary, adolescent rhetoric has, perhaps, been even more painful -- and embarrassing.  For the rest of the world it has never been harder to take our country seriously.

Since very little media effort is currently targeting this problem, MeanMesa has selected excerpts from two Economic Policy Institute articles published when the second attempt to "sunset" the Bush tax law was a brief possibility in late 2012.  When the rest of the country -- those of us without lobbyists -- caved in to  ransom terms demanded by the Owners of the Republican Party, major elements of the extraction scheme survived -- again.

Paralyzd by the Republican Paradigm

How ending the tax cuts helps the economy

The GOP, in all of its many ideological manifestations,  continues to have a frail "common theme" which masquerades as "cutting spending."  While most of the rhetoric emerging from Republicans in Congress or their skillfully manipulative, ideologically sympathetic media pundits is now a constant complaint about "spending being too high," one subtle, yet obvious, contradiction presents itself almost at once.

The "rate" of federal spending about which these complaints are directed is the percentage of annual GDP which the government is spending.  In the short sighted, deceptive darkness of the Republican mind, if this percentage is "too high," it simply means that spending must be reduced.  This is the basis of the artificial -- and ineffective -- "austerity" in which we find ourselves mired at the moment.

However, if federal spending is to be calculated in this fashion, there is instantly an alternative vision.  Even with spending at its current level, if the GDP were to increase, the rate of spending, as the percentage of GDP, would begin to fall.

Facts Mean Nothing - Heritage Fdn's Horror movie

Expiring the lingering Bush tax cuts would, once the oligarchs' screaming tantrums had ceased, also raise the "blue line" representing federal revenue.  While this would be equivalent to the unthinkable Republican nightmare, it would make perfect sense for the country.

There would be plenty of time to adjust federal spending once the Bush tax cut "hole in the life boat" had been repaired.

There really, really is a way to get out of these woods, but none of the paths are as short as we'd prefer.

The unsettling contradiction in the Republican paradigm arises from the hide bound GOP's comfortable unwillingness to acknowledge the restorative prospects of a higher GDP.  The Party's fixation on cutting spending to accommodate their manufactured austerity has overwhelmed the idea that a successfully functioning economy will generate the federal revenue needed to balance all these, for them, grotesque "economic mysteries."

In simpler terms, this will become exactly the unkind "epitaph" the tombstone of Reagan-era "supply side" economics deserves.

The Economic Policy Institute provides two very interesting articles [Links provided.] which were published just as the 2012 attempt to expire the tax cuts was in progress.   They are excerpted here.

the Economic Policy Institute Blog

Let the Bush tax cuts expire, there are better options

Posted December 20, 2012 at 11:30 am by Ethan Pollack

- See more at: http://www.epi.org/blog/bush-tax-cuts-expire-better-options/#sthash.qmcNYtSK.dpuf

 Let the Bush tax cuts expire,

there are better options

December 20, 2012

Ethan Pollack

[Transcribed. Read the entire EPI article here.]

One of the unfortunate side effects of the political dysfunction that has increasingly gripped the nation’s capital is a habit of lurching from one crisis to the next rather than taking time to do a bottom-up assessment of the effectiveness of current policy.
The Bush tax cuts are a great example of this. Republicans want to extend all of the Bush tax cuts, while Democrats generally support extending the tax cuts for only the bottom 98 percent of households. But few end up debating whether these tax cuts are actually optimal policy, and if perhaps a better replacement exists.
This is unfortunate, because the Bush tax cuts are pretty poor policy; in a decade of existence, they have accomplished none of the goals they were intended to achieve. In fact, judging the Bush tax cuts based on their economic impact, distributional impact, and cost, they have been an outright disaster.

Economic stagnation

Under practically any measure, the economy performed exceedingly poorly in the years following the Bush tax cuts. Of the 10 economic expansions since 1949, the economic expansion from 2001 to 2007 ranks last in GDP growth, investment, job creation, and employee compensation. Economic growth was actually 50 percent faster during the 1990s—a time of higher tax rates—than during the 2000s.
The Bush tax cuts are particularly poorly-designed for the current economic situation. Effective job creation policies are those that address the demand shortfall that continues to hold back full recovery. Yet the Bush tax cuts disproportionately go to taxpayers who simply save the money, trading public savings for private savings but doing little for the economy itself. This is why the Bush tax cuts for the rich cost about five times as much as extending the low-income tax credits, yet the job impact is about the same.
- See more at: http://www.epi.org/blog/bush-tax-cuts-expire-better-options/#sthash.qmcNYtSK.dpuf

One of the unfortunate side effects of the political dysfunction that has increasingly gripped the nation’s capital is a habit of lurching from one crisis to the next rather than taking time to do a bottom-up assessment of the effectiveness of current policy.
The Bush tax cuts are a great example of this. Republicans want to extend all of the Bush tax cuts, while Democrats generally support extending the tax cuts for only the bottom 98 percent of households. But few end up debating whether these tax cuts are actually optimal policy, and if perhaps a better replacement exists.
This is unfortunate, because the Bush tax cuts are pretty poor policy; in a decade of existence, they have accomplished none of the goals they were intended to achieve. In fact, judging the Bush tax cuts based on their economic impact, distributional impact, and cost, they have been an outright disaster.

Economic stagnation

Under practically any measure, the economy performed exceedingly poorly in the years following the Bush tax cuts. Of the 10 economic expansions since 1949, the economic expansion from 2001 to 2007 ranks last in GDP growth, investment, job creation, and employee compensation. Economic growth was actually 50 percent faster during the 1990s—a time of higher tax rates—than during the 2000s.
The Bush tax cuts are particularly poorly-designed for the current economic situation. Effective job creation policies are those that address the demand shortfall that continues to hold back full recovery. Yet the Bush tax cuts disproportionately go to taxpayers who simply save the money, trading public savings for private savings but doing little for the economy itself. This is why the Bush tax cuts for the rich cost about five times as much as extending the low-income tax credits, yet the job impact is about the same.
- See more at: http://www.epi.org/blog/bush-tax-cuts-expire-better-options/#sthash.qmcNYtSK.dpuf

"One of the unfortunate side effects of the political dysfunction that has increasingly gripped the nation's capital is a habit of lurching from one crisis to the next rather than taking time to do a bottom-up assessment of the effectiveness of current policy.

This is unfortunate, because the Bush tax cuts are pretty poor policy [EPI: Tenth Anniversary of Bush-era Tax Cuts]; in a decade of existence, they have accomplished none of the goals they were intended to achieve.  In fact, judging the Bush tax cuts based on their economic impact, distributional impact, and cost, they have been an outright disaster.

Economic Stagnation

Under practically any measure, the economy performed exceedingly poorly in the years following the Bush tax cuts.  Of the 10 economic expansions since 1949, the economic expansion from 2001 to 2007 ranks last in GDP growth, job creation and employee compensation.  Economic growth was actually 50 percent faster during the 1990's -- a time of higher tax rates -- than during the 2000's."

The Bush tax cuts, passed in 2001 and 2003, were designed to sunset after 2010 so they could pass Congress through the reconciliation process. They were extended by President Obama through 2012 so as to not raise taxes during the recession/weak recovery; additionally, in exchange for extending them two years, Obama was able to negotiate the payroll tax holiday and the extension of Emergency Unemployment Compensation (EUC). - See more at: http://www.epi.org/blog/bush-tax-cuts-stay/#sthash.XvDGsfsz.Rvu2lSZ7.dpuf

The Bush tax cuts, passed in 2001 and 2003, were designed to sunset after 2010 so they could pass Congress through the reconciliation process. They were extended by President Obama through 2012 so as to not raise taxes during the recession/weak recovery; additionally, in exchange for extending them two years, Obama was able to negotiate the payroll tax holiday and the extension of Emergency Unemployment Compensation (EUC). - See more at: http://www.epi.org/blog/bush-tax-cuts-stay/#sthash.XvDGsfsz.Rvu2lSZ7.dpuf

 

The Bush Tax Cuts Are Here To Stay

[transcribed from Economic Policy Institute article ]

January 7, 2013

REBECCA THEIS

The Bush tax cuts, passed in 2001 and 2003, were designed to sunset after 2010 so they could pass Congress through the reconciliation process. They were extended by President Obama through 2012 so as to not raise taxes during the recession/weal recovery; additionally, in exchange for extending them two years, Obama was able to negotiate the payroll tax holiday and the extension of Emergency Unemployment Compensation (EUC).

The most recent extension of these cuts has allowed conservative members of Congress (and others like Grover Norquist) to claim victory on these tax cuts, which briefly expired on Dec. 31, 2012, only to be reinstated almost in full. Conservative representative Dave Camp (R – Mich) summed up the situation by saying “After more than a decade of criticizing these tax cuts, Democrats are finally joining Republicans in making them permanent.” Indeed, in many ways these are now Democrats' tax cuts as much (if not more so) as they are Republicans.” In the House of Representatives, the bill was passed by a majority of Democratic votes.

With this agreement, Democratic members of the Congress and President Obama have permanently set tax rates – in the sense that they don't expire, not that future Congresses can't change them – at extraordinarily low levels by historical standards. [Tax Policy Center - spreadsheet of historical tax rates] Short of major revenue increases, projected general revenue consequently will grossly underfund government services and investments; relative to a current law baseline (in which the current tax cuts would have expired), passing the income tax rate cuts will lead to $3.2 Tn in lost revenue over a decade, according to Citizens for Tax Justice [Citizens for Tax Justice]. President Obama's initial negotiating proposal to Republicans would have cost about $800 Bn less, notably by raising taxes above a lower $200,000 ($250,000 for joint filers) threshold, taxing dividends as ordinary income and limiting tax savings on itemized deductions to 2 percent. In short, the policy choice made on the Bush tax cuts is expensive. As the Center on Budget and Policy Priorities demonstrated in this 2010 chart [Center on Budget and Policy Priorities], the Bush tax cuts have been projected to remain a large component of deficits in the coming years; they have also been responsible for much of the disparity between current law and current policy baselines submitted by the Congressional Budget Office with each budget update.

The projected costliness of the Bush tax cuts should not come as a surprise; they have been expensive since enacted. They played a major role in the huge swing from surpluses to deficits we experienced over 2001 – 2011. Remember, in Jan. 2001, CBO has projected cumulative surpluses of $5.6 Tn over the 2001 – 2011 period. What we saw instead was cumulative deficits of $6.1 Tn – an $11.7 Tn swing from surplus to deficits. While a number of factors contributed to this swing, including the Great Recession, stimulus efforts, supplemental war and other supplemental appropriations, as well as increased security spending, a huge part of the swing – about 16 percent – was due to the Bush tax cuts. The figure below indicates the roles these tax cuts played.

Surplus to Deficit Causes [EPI]

While the Bush tax cuts were designed as overwhelmingly regressive, the most recent deal does add some progressivity to the tax code, by allowing the cuts to expire for the top 0.7 percent of tax payers remember that even if taxes go up on someone earning $500,000, that person still enjoys lower rates on income below the $400,000/$450,000 threshold. And while there is something to be said for letting these cuts expire for the wealthiest 0.7 percent, remember polling [Huffington cited: Public Opinion Polling] has shown that Americans support raising taxes on the rich by an overwhelming margin. There is a reason why Americans support this; in the last decade, the tax cuts contributed to a widening income inequality [Atlantic cited: Wealth Inequality] by a) providing greater percentage increases in after-tax incomes for high income households than they did for low-income households, and b) providing greater increases in pre-tax income for high-income households than low-income households through preferential treatment of capital income.

Higher deficits in the future, thanks to all-but-certain continuing low revenue levels, will give the GOP many opportunities to pressure Democrats into accepting spending cuts. And while there is something to be said for the stability that comes with a more permanent tax code, this permanent solution is not a good one. It will not be too long before Democrats will again be forced to fight for more revenue increases because of this decision – and who knows if they will have the circumstances in their corner to persuade enough Republicans to join them.

This second article [above] is revealing evidence of the soft sell "myth of validation" which surrounded the media effort to protect the tax cuts in 2012. While MeanMesa in no respect considers Ms. Thies' article to be "simply more of the same" type of common propaganda in support for extending the tax cuts, certain statements still stand out as lacking with respect to objectivity.

Stated bluntly, there is no reason to "negotiate" with elements of an illegitimate minority government while seeking relief from legislative policies which have driven the country to such a precarious poverty.  Further, there is nothing of a constructive "bi-partisan" or "cooperative" nature in desperately attempting to sustain what is left of the American economy across the table from those who so thoroughly looted it only a few years ago.

Perhaps in January, 2013, this author was still able to "over look" the violent extortion schemes the Republicans were so comfortably using to "break the resistance" holding out even the slimmest possibility of better times in the future.

Conclusions

For the first five or so years of the torturous experience with the tax cuts, Americans assumed that the mess would sunset and rectify the damage it caused over time.  Well, those five years are now over.  The economic destruction continues, but this time the 2014 mid-term election is coincident with that recovered awareness.

The country needs a Congress filled with Representatives and Senators who are absolutely committed to ending this dinosaur -- and quickly.  This means that every American will need to campaign to win those seats -- not only in the anti-democracy, gerrymandered districts which started this thing, but also in the recruitment and selection of candidates who can see this through once in Washington.

Count on it.  The lobbyists' checks will be flying like gnats at a late morning bar be que.

during the recession/weak

during the recession/weak

during the recession/weak

The Bush tax cuts, passed in 2001 and 2003, were designed to sunset after 2010 so they could pass Congress through the reconciliation process. They were extended by President Obama through 2012 so as to not raise taxes during the recession/weak recovery; additionally, in exchange for extending them two years, Obama was able to negotiate the payroll tax holiday and the extension of Emergency Unemployment Compensation (EUC).
The most recent extension of these cuts has allowed conservative members of Congress (and others, like Grover Norquist) to claim victory on these tax cuts, which briefly expired on Dec. 31, 2012, only to be reinstated almost in full. Conservative representative Dave Camp (R-Mich.) summed up the situation by saying, “After more than a decade of criticizing these tax cuts, Democrats are finally joining Republicans in making them permanent.” Indeed, in many ways these are now Democrats’ tax cuts as much (if not more so) as they are Republicans.’ In the House of Representatives, the bill was passed by majority Democratic votes.
With this new agreement, Democratic members of Congress and President Obama have permanently set tax rates—in the sense that the rates don’t expire, not that future Congresses can’t change them—at extraordinarily low levels by historical standards. Short of major revenue increases, projected general revenue consequently will grossly underfund government services and investments; relative to a current law baseline (in which the tax cuts would have expired), passing the income tax rate cuts will lead to $3.2 trillion in lost revenue over a decade, according to Citizens for Tax Justice. President Obama’s initial negotiating proposal to Republicans would have cost about $800 billion less, notably by raising taxes above a lower $200,000 ($250,000 for joint filers) threshold, taxing dividends as ordinary income, and limiting tax savings on itemized deductions to 28 percent. In short, the policy choice made on the Bush tax cuts is expensive. As the Center on Budget and Policy Priorities demonstrated in this 2010 chart, the Bush tax cuts have been projected to remain a large component of deficits in the coming years; they have also been responsible for much of the disparity between the current law and current policy baselines submitted by the Congressional Budget Office with each budget update.
- See more at: http://www.epi.org/blog/bush-tax-cuts-stay/#sthash.XvDGsfsz.dpuf

The Bush tax cuts, passed in 2001 and 2003, were designed to sunset after 2010 so they could pass Congress through the reconciliation process. They were extended by President Obama through 2012 so as to not raise taxes during the recession/weak recovery; additionally, in exchange for extending them two years, Obama was able to negotiate the payroll tax holiday and the extension of Emergency Unemployment Compensation (EUC).
The most recent extension of these cuts has allowed conservative members of Congress (and others, like Grover Norquist) to claim victory on these tax cuts, which briefly expired on Dec. 31, 2012, only to be reinstated almost in full. Conservative representative Dave Camp (R-Mich.) summed up the situation by saying, “After more than a decade of criticizing these tax cuts, Democrats are finally joining Republicans in making them permanent.” Indeed, in many ways these are now Democrats’ tax cuts as much (if not more so) as they are Republicans.’ In the House of Representatives, the bill was passed by majority Democratic votes.
With this new agreement, Democratic members of Congress and President Obama have permanently set tax rates—in the sense that the rates don’t expire, not that future Congresses can’t change them—at extraordinarily low levels by historical standards. Short of major revenue increases, projected general revenue consequently will grossly underfund government services and investments; relative to a current law baseline (in which the tax cuts would have expired), passing the income tax rate cuts will lead to $3.2 trillion in lost revenue over a decade, according to Citizens for Tax Justice. President Obama’s initial negotiating proposal to Republicans would have cost about $800 billion less, notably by raising taxes above a lower $200,000 ($250,000 for joint filers) threshold, taxing dividends as ordinary income, and limiting tax savings on itemized deductions to 28 percent. In short, the policy choice made on the Bush tax cuts is expensive. As the Center on Budget and Policy Priorities demonstrated in this 2010 chart, the Bush tax cuts have been projected to remain a large component of deficits in the coming years; they have also been responsible for much of the disparity between the current law and current policy baselines submitted by the Congressional Budget Office with each budget update.
- See more at: http://www.epi.org/blog/bush-tax-cuts-stay/#sthash.XvDGsfsz.dpuf

The Bush tax cuts, passed in 2001 and 2003, were designed to sunset after 2010 so they could pass Congress through the reconciliation process. They were extended by President Obama through 2012 so as to not raise taxes during the recession/weak recovery; additionally, in exchange for extending them two years, Obama was able to negotiate the payroll tax holiday and the extension of Emergency Unemployment Compensation (EUC).
The most recent extension of these cuts has allowed conservative members of Congress (and others, like Grover Norquist) to claim victory on these tax cuts, which briefly expired on Dec. 31, 2012, only to be reinstated almost in full. Conservative representative Dave Camp (R-Mich.) summed up the situation by saying, “After more than a decade of criticizing these tax cuts, Democrats are finally joining Republicans in making them permanent.” Indeed, in many ways these are now Democrats’ tax cuts as much (if not more so) as they are Republicans.’ In the House of Representatives, the bill was passed by majority Democratic votes.
With this new agreement, Democratic members of Congress and President Obama have permanently set tax rates—in the sense that the rates don’t expire, not that future Congresses can’t change them—at extraordinarily low levels by historical standards. Short of major revenue increases, projected general revenue consequently will grossly underfund government services and investments; relative to a current law baseline (in which the tax cuts would have expired), passing the income tax rate cuts will lead to $3.2 trillion in lost revenue over a decade, according to Citizens for Tax Justice. President Obama’s initial negotiating proposal to Republicans would have cost about $800 billion less, notably by raising taxes above a lower $200,000 ($250,000 for joint filers) threshold, taxing dividends as ordinary income, and limiting tax savings on itemized deductions to 28 percent. In short, the policy choice made on the Bush tax cuts is expensive. As the Center on Budget and Policy Priorities demonstrated in this 2010 chart, the Bush tax cuts have been projected to remain a large component of deficits in the coming years; they have also been responsible for much of the disparity between the current law and current policy baselines submitted by the Congressional Budget Office with each budget update.
- See more at: http://www.epi.org/blog/bush-tax-cuts-stay/#sthash.XvDGsfsz.dpuf

The Bush tax cuts, passed in 2001 and 2003, were designed to sunset after 2010 so they could pass Congress through the reconciliation process. They were extended by President Obama through 2012 so as to not raise taxes during the recession/weak recovery; additionally, in exchange for extending them two years, Obama was able to negotiate the payroll tax holiday and the extension of Emergency Unemployment Compensation (EUC).
The most recent extension of these cuts has allowed conservative members of Congress (and others, like Grover Norquist) to claim victory on these tax cuts, which briefly expired on Dec. 31, 2012, only to be reinstated almost in full. Conservative representative Dave Camp (R-Mich.) summed up the situation by saying, “After more than a decade of criticizing these tax cuts, Democrats are finally joining Republicans in making them permanent.” Indeed, in many ways these are now Democrats’ tax cuts as much (if not more so) as they are Republicans.’ In the House of Representatives, the bill was passed by majority Democratic votes.
With this new agreement, Democratic members of Congress and President Obama have permanently set tax rates—in the sense that the rates don’t expire, not that future Congresses can’t change them—at extraordinarily low levels by historical standards. Short of major revenue increases, projected general revenue consequently will grossly underfund government services and investments; relative to a current law baseline (in which the tax cuts would have expired), passing the income tax rate cuts will lead to $3.2 trillion in lost revenue over a decade, according to Citizens for Tax Justice. President Obama’s initial negotiating proposal to Republicans would have cost about $800 billion less, notably by raising taxes above a lower $200,000 ($250,000 for joint filers) threshold, taxing dividends as ordinary income, and limiting tax savings on itemized deductions to 28 percent. In short, the policy choice made on the Bush tax cuts is expensive. As the Center on Budget and Policy Priorities demonstrated in this 2010 chart, the Bush tax cuts have been projected to remain a large component of deficits in the coming years; they have also been responsible for much of the disparity between the current law and current policy baselines submitted by the Congressional Budget Office with each budget update.
- See more at: http://www.epi.org/blog/bush-tax-cuts-stay/#sthash.XvDGsfsz.dpuf