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The “Mother of All Tax Extenders” Is a “Sprouting Leaf of Spinach”

May 27th, 2010 . by economistmom

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The Tax Policy Center’s Howard Gleckman astutely observes that the “jobs-creating, loophole-closing tax [extenders] bill does little of either.”   He notes the irony in claims that these temporary-but-perennial tax cuts (more formally referred to as the extension of “expiring tax provisions”) are fiscally responsible and good (even “essential”) for the economy:

The Joint Committee on Taxation estimates that extending the expiring provisions would reduce federal revenues by $32.5 billion over 10 years. But keep in mind these tax subsidies would all expire—on paper at least—over just a year or two. A more accurate 10-year estimate of the revenue loss (assuming the tax breaks eventually are continued throughout the decade) would likely approach $200 billion…

[W]hile nearly all of the cost of extending the 70 expiring provisions occurs in 2010 and 2011, 90 percent of the revenue to pay for these goodies would not be collected until 2012 and beyond. It isn’t hard to imagine that much of this money will never materialize, either because the law will be changed or because very smart lawyers will figure ways around it. The overall bill, including the new spending, would add about $140 billion to the deficit. It is hard to be too cynical about tax extenders that have reached a state of near-immortality. But the least Congress could do is to call this annual rite what it is: Continuing tax loopholes, not closing them.

And speaking of the deficit-financed extension of expiring tax cuts being twisted around and artistically re-characterized as “fiscally responsible,” let’s bring up my favorite issue–or more accurately, “peeve.”  I consider the “mother of all tax extenders” the proposed extension of most of the Bush (2001 and 2003) tax cuts, which is the single most costly deficit-financed policy proposed in President Obama’s budget.  This week the Pew Charitable Trusts issued a report (”Decision Time: The Fiscal Effects of Extending the 2001 and 2003 Tax Cuts”) that puts the cost of extending the Bush tax cuts in better perspective.  The report notes how the deficit-financed permanent extension of these tax cuts (even “just” most of them as proposed by President Obama) would add significantly to the federal debt, bringing it to more clearly “unsustainable” levels of around 80 percent of GDP in just ten years–and highlights the fact that allowing (just) the top-end rate brackets to expire (continuing tax cuts in full for those with incomes under $250,000) barely saves money relative to the cost of extending the entirety of the Bush tax cuts.  Another way the Pew report highlights how costly the Bush tax cuts are is to point out how hard it would be to pay for the extension of the tax cuts by reducing government spending; for example, one way to pay for extending “only” the Bush tax cuts that President Obama proposes to extend would be to cut all mandatory and discretionary federal spending by 5 percent.  (If you want to extend all the Bush tax cuts, you’d have to cut all federal spending by 7 percent.)

The Pew report also suggests that you could make the extension of the Bush tax cuts not so much a “mother of a” tax extender by extending them for only two years, rather than permanently.  But then of course you get back to Howard’s fundamental question: is there really such a thing as a fiscally-responsible (inexpensive and truly “expiring”) tax extender?

The Pew report doesn’t really provide any estimates that the CBO budget outlook hadn’t already provided; it just more clearly highlights the significance of the policy choice the Obama Administration will make about the Bush tax cuts.  Concord’s “plausible baseline” uses the CBO numbers on expiring tax provisions another way, to show that under a fiscally “worst-case” scenario where all expiring tax provisions currently on the books (including stimulus tax cuts) are permanently extended and entirely deficit financed, these tax cuts would add $6.3 trillion to the ten-year (2010-20) budget deficit, which under current law (assuming all expiring tax provisions actually expire as scheduled) is “just” $6.0 trillion.

So this is a huge deal–this proposed permanent extension of most of the Bush tax cuts.  As this hilarious Onion story suggests, it is like a “sprouting leaf of spinach.” How so?

After nervously clearing his throat, Motley was heard to ask, “Wherefore is the National Debt like a sprouting leaf of spinach?” When a glowering Obama demanded the answer, Motley stated, “For it shall rapidly grow into something our children cannot bear.”

5 Responses to “The “Mother of All Tax Extenders” Is a “Sprouting Leaf of Spinach””

  1. comment number 1 by: VAT Brat

    Obama and the Democrats are just as cynical as Bush and the Republicans. In 2001-2003, the Republicans justified the tax cuts and spending increases because there was a recession. In 2009-2010, Obama and the Democrats use the same excuses.

    Keynsian economics is the root of this poisonous proclivity toward deficit spending. It is so focused on present measurements of national income and unemployment that it makes people believe that they are getting a free lunch.

    We pay the price for these deficits in the future with lower growth rates due to lower accumulation of capital. We don’t see China implementing Keynsian theories to propel their economic growth, but the Krugman’s of the world don’t want you to examine evidence staring us right in the face. That would threaten the ideological gilded cage he lives in.

    Outside of unemployment benefits to ensure that masses of people do not starve or lack shelter, these so-called stimulus programs are excuses for expanding the percentage of government’s control over the economy.

    The Keynesians lack patience and foresight. They want results now. Like petulant teenagers they want things before they’re ready. It’s the perfect ideology ( I won’t dignifiy it with the label of a social science) to make immature behavior seem mature and responsible. Anyone who sat through a class of macroeconomics and learned about the consumption multiplier effect could know it was a croc of s**t that you could spend your way into prosperity. How smart people get PhDs for learning that crap is beyond me.

    So yes, we’ll get tax cut extensions and more deficit spending until the simple-minded voters, whose brains aren’t filled with Keynsian nonsense, get the power to approve any requests by Congress to increase the limit of public debt. After all, it’s http://www.thepeoplesdebt.com .

  2. comment number 2 by: AMTbuff

    The real sprouting leaf of spinach is the suite of government benefits growing unchecked: Medicare, Medicaid, Social Security, our new health care insurance commitments, and government salaries and pensions. To that spending we can add interest payments on the national debt, another source of uncontrolled growth.

    Against these factors tax extenders are nearly inconsequential. Even in New Jersey, the voters understand that spending is the root of the problem, no matter how much the experts try to convince themselves otherwise. The voters will not support tax increases until spending and promises have been cut back much more than progressives are currently willing to consider doing.

  3. comment number 3 by: Curly

    Extending the tax cuts will increase the deficit if that is all that you do. The cause of the deficit is spending more than you take in. To reduce the debt reduce the expenditure. To reduce expenditure reduce the dependence upon government. Government’s job is not to take care of its citizens but conduct foreign affairs and national defense. But government has here in the US and much of the rest of the would is trying to give its citizens cradle to grave care just like they don’t know how to do it themselves. Because of what the government has been doing it is causing that idea to come about. If you want this nation to return to its glory the people are going to have to be more self-reliant.

  4. comment number 4 by: AMTbuff

    Currently the government tries to back-bill the estate of people who received means-tested benefits before they died. I can easily foresee new laws extending this recovery scheme to both parents and descendants. Children would be liable for repayment of government payments to their parents, e.g. nursing home care under Medicaid.

    This in turn would lead to difficult family discussions as to whether or not the parent should accept those benefits, and as to whether or not the children should care for the parent at home.

    Like it or not, this method is more humane than a straight rationing approach.

  5. comment number 5 by: Kalee

    I don’t understand how we are going to cut our deficit, when Obama and the Dems just want to spend more money.
    Yes, it is hard to cut services, but we must figure something out.
    There has got to be a way to cut our deficit. Maybe not an easy way, but something.
    However, we must start as soon as possible.
    I believe this is why the Tea Party is so popular- because above all, they want to cut our debt.
    Clearly, the Bush tax cuts should expire.