Last week, 42 senators voted for a proposal by Senator Jim DeMint (R-SC) to permanently extend all of the Bush income tax rate cuts while cutting programs to pay for it (though they didn’t specify which ones). Supporters included all Senate Republicans except Senator George Voinovich, plus two Democrats — Senators Ben Nelson and Blanche Lincoln. This vote, which has received little media attention, constitutes a major warning to anyone concerned about the nation’s fiscal future and its basic priorities.
BEYOND THE NUMBERS
Today, we sat down with Chuck Marr, the Center’s Director of Federal Tax Policy, to discuss the tax cuts that are set to expire at the end of the year.
At its meeting yesterday, the President’s Commission on Fiscal Responsibility and Reform discussed imposing a numerical limit on federal spending as a share of the economy. One of the commission’s co-chairs has suggested capping spending and revenues at 21
percent of gross domestic product (GDP), the average spending level over the past 40 years. But as I explain in a new report, averages from the past aren’t a good guide for the future:
On our conference call for journalists this morning, former Federal Reserve Vice Chairman Alan Blinder made the case for letting President Bush’s tax cuts for those making more than $250,000 expire this year and using the savings over the next two years for measures that would better stimulate the economy, such as extended unemployment benefits and food stamps. Below is the audio and a cleaned-up transcript of the presentation portion of the call.
Even some key members of Congress who agree that President Bush’s tax cuts for people making over $250,000 are unaffordable have raised concerns that letting them expire in December would slow the already weak economy. Fortunately, Congress can boost short-term growth and help reduce long-term deficits: sunset the high-income tax cuts on schedule, re-channel the near-term revenues to far more efficient ways to generate growth and jobs, and use the long-term savings to reduce the deficit.
A couple of promising developments occurred on the estate tax front yesterday. The Senate soundly defeated (59-39) an effort by Sen. Jim DeMint (R-SC) to repeal the tax permanently. (It expired at the end of 2009 but is scheduled to return in much larger form next year when the 2001 tax cut expires.) And at a teleconference sponsored by United for a Fair Economy, former Treasury Secretary Robert Rubin called on Congress to reinstate a robust estate tax.
Former Federal Reserve vice chairman Alan Blinder makes an excellent suggestion in today’s Wall Street Journal: Congress should let the Bush tax cuts for people earning over $250,000 expire in December and use the savings to pay for jobless benefits and other programs that “put more spending into the economy than the tax hike takes out, thus creating jobs.”
Tomorrow morning the Senate Finance Committee begins debate on what to do with the Bush tax cuts, which are set to expire at the end of the year. Here’s some homework to prepare for this important hearing:
My colleagues and I have written repeatedly (for instance, here, here, and here) about the need for Congress to enact another round of stimulus legislation that would extend unemployment benefits and provide additional fiscal relief to states, both of which would help strengthen the fragile recovery.
With the country facing high unemployment and a weak economy in the short term and severe budget problems in the long term, you’d think that senators negotiating a jobs bill would be trying to maximize both its short-term economic boost and its long-term budget savings. You’d be wrong.