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:
The long-term budget picture. The Congressional Budget Office has updated its long-term forecast showing that our country is on an unsustainable course. The report concludes, “Keeping deficits and debt from growing to unsustainable levels would require raising revenues as a percentage of GDP significantly above past levels, reducing outlays sharply relative to CBO’s projections, or some combination of those approaches.”
The cost of the Bush tax cuts. Relying on CBO data, we have highlighted the large role that the Bush tax cuts have played in the fiscal deterioration of recent years — and their large ongoing cost if Congress extends all of them. In 2019 alone, for example, the tax cuts would cost over $700 billion (including the added interest payments on the national debt), or more than half of the roughly $1.3 trillion deficit we project for that year if the federal government continues current tax and spending policies. Our report also acts as a corrective to an op-ed in today’s Wall Street Journal that tries to understate the tax cuts’ costs.
Tax cuts and the economy. ACBO study found that extending the Bush tax cuts for high-income filers would be less cost-effective in boosting growth and job creation than any other policy option it examined. The President has proposed extending the tax cuts for families making under $250,000 but allowing the high-income tax cuts, which benefit the top 2 percent of families, to expire on schedule. We explain here why letting the high-income tax cuts expire represents sound economic and fiscal policy.
Growing income gaps. Income inequality in the United States has exploded in recent decades, a recent Center report shows. Between 1979 and 2007, average after-tax incomes rose by 281 percent for the top 1 percent of households but by just 25 percent for the middle fifth of households. As our report explains, the Bush tax cuts have helped widen income inequality by raising after-tax incomes the most at the top of the income scale.