The tax battle brewing in Washington hasn’t become top-line news yet, but it will in just a few weeks. The core issue is whether the Bush tax cuts of 2001 and 2003, which heaped the biggest benefits on America’s wealthiest 5 percent while vastly increasing deficit spending, should be continued despite rising federal deficits and the cumulative national debt.
The issue is monumental both for politically symbolic reasons, and for its direct fiscal impact on the nation’s fiscal integrity and on major entitlements and safety net programs in the coming years and decades.
The Bush administration the Republican-controlled Congress at that time put the tax breaks under a 10-year expiration period chiefly because the soaring federal deficits they would have generated – in the trillions of dollars over the next 10-to-20 years due to the loss of tax revenue -were blatantly unaffordable. The Bush administration and his party would have had to acknowledge those stunning red-ink costs if it had made the tax cuts permanent, and that would have killed the deal.
The annual deficits and total debt the Bush administration left for the 10-year life of the tax cuts is onerous enough as it is. George W. Bush took office after the Clinton-Gore administration had worked its way out of the Reagan/Bush I deficits and turned in three consecutive budget surpluses. The Bush II administration quickly reversed that stellar financial picture, doubling the nation’s debt from $5.7 trillion to more than $12 trillion through the 2009 budget he left for President Obama’s first fiscal year. Part of that new debt, to be sure, came from the unpaid-for wars in Iraq and Afghanistan, which by all logic should have precluded the tax cuts.
The Obama administration, and a legion of economists, believe the most sensible policy for 2011 is to renew the tax cuts for the 95 percent of American families with incomes under $250,000 ($200,000 for singles), but to cancel the cuts for the 5 percent of Americans – and especially the top 1 percent – whose incomes are well above that level.
Though that would still increase the deficit, it’s justifiable as a matter of tax equity for the huge majority of Americans whose inflation-adjusted wages have fallen over the past 10 years. It’s also vital to keep consumer spending stable enough to help the economy’s slow recovery from the financial implosion of 2008 and the recession that drags on in the wake of that crisis.
Republicans, by contrast, are preparing a battle plan apparently hinges on a belief that Americans have collective amnesia. They have seized on federal deficit spending as their new campaign whipping boy. Never mind that their tax cuts created most of the current debt; They are preaching more tax cuts for the rich as the remedy for the sour economy that still haunts the nation.
That would be disastrous, but their trickery never fails to gleam like pyrite. They hope voters will conveniently forget the GOP’s Bush-era fiscal sins that drove the nation into the deep hole we’re in, so they’re counting on voters to swallow the notion that letting the tax cut for the wealthiest expire amounts to a tax increase. They already are claiming that letting those high-end tax cuts expire will amount to a job-killing action. And, their saying that tax cuts don’t need to be paid for because they stimulate the economy. In fact, contemporary statistics prove the opposite on both points.
If Republicans cared about stimulating the economy, they would not have killed, by Senate filibuster, a Democratic proposal to let the Federal Reserve open a $30 billion line of credit for loans to small-businesses to which cash-hoarding banks have stopped lending. And if they cared about laid-off workers and the underemployed, they would have voted for an extension of unemployment benefits.
Those votes, along with their urgency to renew tax cuts for the wealthy, prove precisely where their empathy and priorities lie. That’s what voters should remember when the battle over begins over the proper recipients for renewal of the Bush tax cuts.