Economists Worried By Support For Tax Cuts

Washington Post: As Candidates Warm to Bush Tax Cuts, Economists Warn of Long-Term Effect

(CBS)  This story was written by Lori Montgomery.

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When President Bush pushed big tax breaks through Congress in 2001 and 2003, Sen. John McCain (R-Ariz.) joined Sen. Hillary Rodham Clinton (D-N.Y.) and other Democrats in opposing them as fiscally reckless. But now that McCain and Clinton are running for president, neither is looking to get rid of the cuts. Instead, they are arguing over which ones to keep.

The same is true of Clinton's rival for the Democratic nomination, Sen. Barack Obama (Ill.), who recently blamed the Bush tax cuts for driving the nation toward recession. But he, too, wants to preserve about half the cuts, and pile on new ones.

The direction of the tax debate is frustrating deficit hawks in Washington, who worry that none of the candidates is charting a course toward a balanced budget. Meanwhile, Bush and other politicians are telling voters alarmed by a sagging economy that keeping the cuts past their 2010 expiration date can help revive the nation's fortunes, a claim many economists say is nonsense.

Far from acting as an economic tonic, the tax cuts "are neither sustainable nor beneficial" without massive cuts in government spending far beyond what Bush or any candidate to succeed him has proposed, said Alan D. Viard, a former economist in the Bush White House who is a resident scholar at the American Enterprise Institute. The most popular cuts -- those known as "middle-class" tax cuts -- are more likely to slow economic growth than promote it, Viard and others said.

"Those are the provisions that detract from long-term growth even if you finance them with a reduction in government spending," said Robert Carroll, a former Bush Treasury official who teaches at American University. "If you pay for them with future tax increases, I think that would be awful."

The tax cuts, the signal economic achievement of the Bush administration, are among the three biggest federal tax reductions since the end of World War II, comparable in size to the Reagan tax cut of 1981 and the Kennedy tax cut passed in 1964, according to the nonprofit Tax Foundation. By the time the Bush cuts are scheduled to expire, it's projected that they will have saved taxpayers $1.6 trillion.

The cuts affected both businesses and individuals. The individual cuts, which are the focus of the current debate, are split into two main elements.

The first, growth-oriented provisions, are aimed at spurring the economy in the long term and flow mainly to the wealthy. Those provisions lowered the estate tax and will repeal it in 2009, and lowered the tax on capital gains and dividends to 15 percent. The legislation also lowered the top four income tax brackets, with the top rate falling to 35 percent from 39.6.

The second element, social-relief provisions, are aimed at providing short-term stimulus and flow to a wider spectrum of taxpayers. Those provisions created a 10 percent tax bracket at the bottom of the scale, doubled the child-tax credit to $1,000 and reduced the penalty on married couples filing jointly.

The economic impact of the cuts is unclear. A recent report by the nonpartisan Congressional Research Service said "it is hard to be certain what effects the tax cuts have had on the economy because there is no way to compare actual events to the counterfactual case where the tax cuts were not enacted."

Conceived during Bush's 2000 presidential campaign as a means to return what were then huge government surpluses to taxpayers, the cuts were approved by Congress in the midst of a recession, which worsened after the Sept. 11, 2001, terrorist attacks. Though the recession was mild, the recovery was sluggish and hampered by a deep decline in employment. Productivity ultimately rebounded robustly, but national savings plunged, and the country racked up a large trade deficit.

Critics look at that record and say the cuts were ineffective. Advocates say the economy would have fared worse without them. Most analyses split the difference, finding that the cuts probably stimulated growth in the short run but reduced it over time.

Why would tax cuts hurt the economy? Because their one very clear effect was to increase the budget deficit. Combined with spending on the wars in Afghanistan and Iraq, and a huge new prescription drug benefit for Medicare recipients, the cuts helped drive the annual deficit to a peak of nearly $413 billion in 2004. Last year, it dwindled to $162 billion. But the nation's cumulative debt has nearly doubled since Bush took office and now exceeds $9 trillion.

"If tax cuts aren't paid for, the extra debt hurts the economy more than any direct benefit from the tax cuts," said Jason Furman, a former adviser to President Bill Clinton who is now at the Brookings Institution. "If you cut taxes without cutting spending, you're just shifting taxes to the future."

There is little disagreement among most economists on that point. Even the Bush Treasury Department found that failing to cut government spending commensurate with the tax cuts would leave the cuts with a "negligible effect" on the economy, Carroll said.

Because the tax cuts were projected to yield giant budget deficits, they were written to expire in 2010. Bush and other Republicans, including McCain, want to make them permanent, arguing that the specter of higher taxes in 2011 is adding uncertainty to and weakening today's economy. That move that would deprive the treasury of $2.4 trillion over the next 10 years, according to the Joint Committee on Taxation.

Democrats, including Clinton and Obama, have said they want to keep the social-relief provisions, as well as income tax cuts for households making less than $250,000 a year, to help strengthen the middle class. By taking tax cuts away from the rich, the candidates suggest that they will generate cash that could be spent elsewhere.

But that is not technically true. The middle-class tax cuts also reduce revenue -- by about $800 billion over the next decade, according to an analysis by the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution.

"They said President Bush was fiscally irresponsible for enacting the tax cuts, but on balance, they would increase the deficit by just as much," said Len Burman, the center's director. "All of the campaigns understand that, but they've collectively decided they can't recognize the reality that we're spending beyond our means."

Of the three candidates, budget analysts said McCain has been most aggressive at identifying ways to reduce spending. "We have to cut spending everywhere," said McCain's top economic adviser, Douglas Holtz-Eakin. But McCain's proposals come nowhere near generating the sums necessary to meet the costs, analysts said.

Out of curiosity, Viard asked a research assistant to put together a list of spending cuts and revenue hikes to cover the cost of making the Bush tax cuts permanent. Her findings? For starters, the government would have to slash benefits for Social Security, Medicare and Medicaid recipients.

"Any such package is political death," Viard said. "Not to put too fine a point on it."

[leftyintexas]

The Doofus tax cuts were fiscally reckless but when the taxes have to be raised again the Democrats will get the blame and the Republicans will get the credit for ''standing up for the little man''. I know how these BOZOS operate. Do you?

[pepperwood2]

Doesn''t the Photo show Hillary looking more & more like Ferarro with each passing day?

WASHINGTON - Hillary Clinton spends considerable time on the campaign trail bemoaning unscrupulous lenders who have left millions of Americans scrambling to keep their homes but all the while her campaign manager, Margaret %u201CMaggie%u201D Williams, has sat on the board of one of the nation%u2019s once-largest and now-bankrupt sub-prime mortgage lenders.

Clinton Communications Director Howard Wolfson told FOXNews.com late Sunday that Williams, a longtime Clinton ally, didn%u2019t join Clinton%u2019s Democratic presidential campaign as a volunteer until after Delta Financial Corporation %u2014 for which Williams is a director %u2014 went bankrupt in December 2007.

Don''''t confuse the people of Pa. with the facts. NAFTA didn''''t fool the Ohioians, did it? CACKLE CACKLE CACKLE

Go Hillary!

[quetzal0666]

obama8years...
and What exacly is wrong with Oppozing Zionist Occupation? and Apparteid?

[obama8years]

youtube.com/watch?v=LIe4d9Nmg9k

Obama is backing muslim extremist!

badbarack.org

obamatruth.org

OBAMA TIES TO HAMAS

The Jewish Telegraphic Agency today reports that the Wright, Jr., long-time pastor of Obama, published an op-ed piece signed by a Hamas leader. The item appeared in the July 22, 2007 edition of his Trinity United Church newspaper on the "Pastor''''''''''''''''s Page." Justifies attacks on Israeli civilians, and carries a supporting introduction by Mr. Wright.

Obama issued a statement strongly condemning these views of his pastor. "I certainly wasnt in church when that outrageously wrong [Hamas] piece was re-printed in the bulletin.


Obama is a long-time member of Trinity United, and his financial contributions to his church are reported to be substantial ("All told, the [Obama] couple gave $27,500 to [Trinity United] in 2005 and 2006," according to the New York Times of March 26). His moral support to the church has been unwavering. As more and more and more details of the extremist political positions of the church are revealed, Obamas response has been to distance himself from these, but also to repeat, over and over, that he didn''''''''''''''''t know, that he wasn''''''''''''''''t there.

I find it very difficult to believe that an intelligent, energetic, and very political man like Obama is perpetually ignorant about what goes on in the church to which he devotes so many of his resources. If he does get to the White House....

[alexandrap1]

- HILLARY''S POOR JUDGMENT -

THE WAR IN IRAQ IS HAVING SERIOUS NEGATIVE EFFECTS ON OUR ECONOMY and those who voted for the war (i.e. hillary) should be to blame, in part, for the state of the US economy.

Look how the WAR IN IRAQ is affecting the US economy...

$3,000,000,000%u2026 3 billion dollars PER WEEK! That is the amount America is paying for the Iraq War PER WEEK, money that should have been used here, at home.

Add to this:

Interest. We are financing the war with borrowed money (e.g. treasuries) that carries interest; so in actuality, the war is costing the United States MORE THAN 3 billion dollars PER WEEK.

Higher oil and energy prices. Instability in Iraq is adding roughly 30 dollars per barrel as a premium.

High oil prices mean high utility bills. Due to high oil prices, demand shifts to other sources of energy - gas, coal, etc. - and greater demand will raise the equilibrium price of all sources of energy -- Can you say high energy bills?

Higher oil prices (a raw material used in the production of many goods, fertilizers, gasoline, diesel, plastics, etc.) mean higher prices of goods and services -- Can you say INFLATION?

Higher oil prices mean a higher trade deficit because most of our oil comes from foreign sources. A higher trade deficit means more money is leaving the country than is coming into the country -- Can you say Goodbye hard-earned money!

Our dollar is weak and getting weaker.

[sgtrds]

Housing Scandal resulted during Reagan supply side economics era.

And another Housing Scandal in the Bush supply side economics era.

All because giving money to those who are wealthy and addicted to wealth WILL ONLY SEE THEM GAMBLE away tax breaks and damage the markets!

Posted by Agnim at 11:23 PM : Mar 30, 2008

100% correct! Reaganomics wrought the Savings and Loan crash, while Bush''s version is the mortgage lending institution. The rich got richer and the middle-class got scr*ewed.

[sgtrds]

The Bush tax cuts have done exactly what they were intended to do, funnel more taxpayer money to the rich at the expense of the middle-class. Neocon Economics 101. Make the rich much much much richer. Reduce to the middle class to the smallest possible number by making them poor. Create essentially a 2 class society with the vast number poor servants (serfs) and a few middle class managers (overseers as they used to call them on the plantation) and the rich being served by all. This IS class warfare and the elite are winning. The question is do we end up servants or revolutionaries like our founding father were?

[agnim]

Viard is an idiot!

Tax cuts for working families IS the way to go; because the working families will turn around and purchase goods and service. And the wealthy can produce and sell goods and service to the working families.

This upward flow of cash and downward flow of goods and services will keep consumer spending and production rolling in a balanced economic way.

Tax cuts to those who are addicted to wealth will only see the extra cash GAMBLED in Vegas or in Financial and Interest Rate markets -- NO PRODUCTION, but crashing of the markets from over speculation!

Reagan practiced supply side (voodoo economics) and we had the SAME market problems we are now experiencing with the dumb Bush and his voodoo economics.

Housing Scandal resulted during Reagan supply side economics era.

And another Housing Scandal in the Bush supply side economics era.

All because giving money to those who are wealthy and addicted to wealth WILL ONLY SEE THEM GAMBLE away tax breaks and damage the markets!

[lorinkundert]

Worry about this:

Individuals are not required by any law to pay income taxes as those would be direct taxes subject to apportionment, the 16th did not expand the taxing powers of Congress as per two dozen Supreme Court rulings.

[the74blaster]

Obama is backing muslim extremist!

Posted by obama8years,

State your source for this B.S. claim!!!! I''ll bet that you cannot name a credible source.

[cattlekate]

If you sell your home and make a profit,
you will pay 28% of your gain on taxes. If you are heading toward
retirement and would like to down-size your home or move into a retirement
community, 28% of the money you make from your home will go to taxes. obama8years

Well, just like your accusation that Obama supports muslim extremists, this is a blatant lie. (And just a few months ago you were stating Obama was a muslim.)

Ever heard of the "home exclusion?"

And Obama''s roll backs are only for the top 1% wealthiest.

Which you are not.

[obama8years]

youtube.com/watch?v=LIe4d9Nmg9k

Obama is backing muslim extremist!

[Stratmaster7]

obama8years, help me to understand how you plan on addressing the record deficit and debt, without raising taxes or cutting me off from the programs (SSI and Medicare) that I have been forced to contribute to for the last 30 years, and therefore have a reasonable expectation of receiving.

[sjc_1]

The national debt when G.W. Bush took office about $5.6 trillion. The national debt when G.W. Bush leaves office, more than $9.4 trillion. What does adding almost $4 trillion in debt mean to you, your kids, your grandkids? What does paying $200 billion per year just for interest on that additional debt mean? What does paying a lot of that to Japan, Saudi Arabia and China mean? You can not continue to fund the Pentagon at $500 billion per year and spend more than $1000 billion on a "war on terror" and not have revenue to cover it without adding debt. You do the math. But wait, I know...we will just cut the Medicare and Social Security that so many people need and have paid for all their lives...that will solve the whole problem! (that they have created)

[obama8years]

INCOME TAX

MCCAIN
(no changes)
Single making 30K - tax $4,500
Single making 50K - tax $12,500
Single making 75K - tax $18,750
Married making 60K- tax $9,000
Married making 75K - tax $18,750
Married making 125K - tax $31,250

OBAMA
(reversion to pre-Bush tax cuts)
Single making 30K - tax $8,400
Single making 50K - tax $14,000
Single making 75K - tax $23,250
Married making 60K - tax $16,800
Married making 75K - tax $21,000
2 days ago

Married making 125K - tax $38,750

CLINTON
(reversion to pre-Bush tax cuts)
Single making 30K - tax $8,400
Single making 50K - tax $14,000
Single making 75K - tax $23,250
Married making 60K - tax $16,800
Married making 75K - tax $21,000
Married making 125K - tax $38,750


How does this affect you? No explanation needed. This is pretty
straight forward.

[obama8years]

CAPITAL GAINS TAX

MCCAIN
15% (no change)

OBAMA
28%

CLINTON
24%

How does this affect you? If you sell your home and make a profit,
you will pay 28% of your gain on taxes. If you are heading toward
retirement and would like to down-size your home or move into a retirement
community, 28% of the money you make from your home will go to taxes.
This proposal will adversely affect the elderly who are counting on the
income from their homes! as part of their retirement income.
2 days ago

DIVIDEND TAX

MCCAIN

15% (no change)

OBAMA
39.6%

CLINTON
39.6%

How will this affect you? If you have any money invested in stock
market, IRA, mutual funds, college funds, life insurance, reti! rement a
ccounts, or anything that pays or reinvests dividends, you will now be
paying nearly 40% of the money earned on taxes if Obama or Clinton
become president. The experts predict that "Higher tax rates on dividends
and capital gains would crash the stock market yet do absolutely nothing
to cut the deficit."

[obama8years]

Element51- I have to disagree with you. 30% of americans still have no idea about the rev. wright and obama scandal. With the Media in the tank with obama, I feel a need to get the message out. I will take notice of duplicate posts and appreciate your opinion, my goal is not to be a PIA, but to make sure people who dont know, will at least have the information they need to make the right choices. Feel free to post positive or negative stuff about Hillary, Mccain, Bush, etc.

[obama8years]

Element51 - Thanks for reading, tell your friends.

www.obamatruth.org

badbarack.org

[obama8years]

NEW TAXES BEING PROPOSED BY BOTH CLINTON AND OBAMA

* New government taxes proposed on homes that are more than 2400
square feet
* New gasoline taxes (as if gas weren''''t high enough already)
* New taxes on natural resources consumption (heating gas, water,
electricity)
* New taxes on retirement accounts

and last but not least....

* New taxes to pay for socialized medicine so we can receive the same
level of medical care as other third-world countries!!!

Can you afford Clinton or Obama? I can''''t!!!!!

[demwatcher]

"Any true "conservative", in fact any sane person would call that fiscal suicide as well as treason, but as we all know, those now calling themselves "conservatives" have abandoned all semblance of financial prudence, to indulge two of their favorite pastimes, genocide and corruption.

Get out of Iraq, stop all non defensive hostile military activities, cut the ridiculously overpriced military budget first, then you can afford to cut taxes.

Posted by brianbwb at 02:58 AM : Mar 29, 2008"

Were you born ignorant or did you work hard to achieve your current level of stupidity?

You Liberal, brain dead, arse. Spouting nonsense and making broad, sweeping allegations that have no basis in fact and are just re-hashed Dem talking points.