S
Sid9
Guest
December 14, 2007
On the Economy
The Republicans' Expensive Tax Promise
By TOM REDBURN
For decades, ever since Ronald Reagan was elected in 1980, promising to cut
taxes has been an essential element of every successful Republican campaign
for the presidency. Republican politicians still vividly remember that
George H.W. Bush lost to Bill Clinton after agreeing to a modest tax
increase as part of a broad budget deal - and most have vowed never to make
that mistake again.
But there is a crucial twist to the campaign this time around. All of the
Republican candidates have pledged to extend President Bush's tax cuts from
the early 1990s beyond their scheduled expiration in 2010. That promise,
however, does not carry the same weight as in the past.
That's because, rather than delivering any additional benefit that voters
can actually take to the bank, carrying out such a pledge would do nothing
more than maintain the status quo. Nobody's taxes would be cut further; they
would at best stay the same. There's not as much political payoff in that.
And preventing anybody from being worse off is going to be incredibly
costly. Indeed, it requires running faster and faster just to stay in the
same place. A new report from the Congressional Budget Office on the
long-term budget outlook, delivered to Congress on Thursday, makes clear the
depth of the fiscal hole the next president will inherit from President
Bush.
Simply to extend the Bush tax cuts indefinitely into the future and, as both
Republicans and Democrats have vowed, prevent the alternative minimum tax
from imposing an increasingly heavy burden on tens of millions of
middle-class and upper middle-class taxpayers would cost the government,
over the next decade, roughly $2.5 trillion in revenues now expected under
current law. And that's just the beginning.
Even without taking on any additional tasks, merely meeting the government's
existing obligations - mostly to pay for the military and to keep up with
the health care and retirement needs of the elderly - would send the budget
deficit soaring, pushing overall federal debt held by the public from under
50 percent of the size of the nation's economy today to over 300 percent by
2050.
"The combination of roughly constant revenues and significantly rising
expenditures would quickly create an unstable fiscal situation," the budget
office report notes alarmingly, but in its characteristically dry and
understated manner.
How would the Republican candidates deal with this problem? Most say they
would try to hold down spending - and cut taxes even more.
Indeed, without providing many specifics about his proposed spending cuts,
Rudolph W. Giuliani, in a recent op-ed article in The Wall Street Journal,
wrote that he was "committed to making the 2001 and 2003 tax cuts permanent,
while aiming at still-lower marginal rates. We'll give the death tax the
death penalty, index the Alternative Minimum Tax for inflation as a step
toward eliminating it entirely, expand tax-free savings accounts, and expand
health-care choice through tax reform. We also need to reduce the corporate
tax rate."
Fred D. Thompson recently unveiled his own tax proposal, which would not
only match the Giuliani promises, but would also allow taxpayers to choose
between paying under the current system or opting for a "flat tax" with
lower rates that would eliminate nearly all deductions. The simplified tax
system would have just two rates: 10 percent and 25 percent.
The nonpartisan Tax Policy Center analyzed Mr. Thompson's overall proposal
and found that it would "represent, by far, the largest tax cut in history -
much larger than the tax cuts enacted in 2001 or 1981. Over 10 years,
individual income and estate taxes would fall by about $6 trillion to $7
trillion - or as much as 20 percent of overall revenues - before allowing
for any behavioral responses."
Mr. Thompson predicted that the tax cut would largely pay for itself by
stimulating economic growth and discouraging tax avoidance. If not, he
suggested, any additional savings could be achieved by limiting Social
Security benefits.
But the Tax Policy Center report found that any improvements to the economy
from lower tax rates would be modest. As a result, the Treasury would
recover no more than about $1 trillion over the decade, resulting in an
overall revenue loss of $5 trillion to $6 trillion. The tax cuts would fall
far short of paying for themselves.
And nearly all the money, like the earlier rounds of tax cuts this decade,
would flow to those at the top of the income ladder.
Meanwhile, Mike Huckabee has proposed yet a third alternative, endorsing the
so-called "fair tax," which vows to replace all federal revenues - income
taxes, payroll taxes for Social Security and Medicare, estate taxes, etc. -
with a national sales tax on everything except education.
Proponents say that a sales tax rate of 23 percent on just about all goods
and services would generate the same revenues as the current system, but tax
experts like Bruce Bartlett, a former Treasury official under President
Ronald Reagan, say that it would effectively mean raising the cost of
everything people buy by at least 30 percent.
And even if such a tax could be practically instituted, it would still not
close the fiscal gap that is about to explode over the next few years.
"Campaigns bring out the Santa Claus in politicians," said Leonard Burman,
director of the Tax Policy Center, which is associated with the Brookings
Institution and the Urban Institute. "But the numbers just don't add up. By
promising more tax cuts than we can afford, they are really misrepresenting
the choices the nation faces."
Democrats certainly have their own problems balancing their spending
proposals - particularly for health care - with the revenues available to
pay for them, but the Republican candidates, by vowing to extend President
Bush's tax cuts, have left themselves with a far bigger fiscal gap to fill.
So before the Republicans make any new tax promises, it might help if they
first told voters how they plan to pay for the old ones.
On the Economy
The Republicans' Expensive Tax Promise
By TOM REDBURN
For decades, ever since Ronald Reagan was elected in 1980, promising to cut
taxes has been an essential element of every successful Republican campaign
for the presidency. Republican politicians still vividly remember that
George H.W. Bush lost to Bill Clinton after agreeing to a modest tax
increase as part of a broad budget deal - and most have vowed never to make
that mistake again.
But there is a crucial twist to the campaign this time around. All of the
Republican candidates have pledged to extend President Bush's tax cuts from
the early 1990s beyond their scheduled expiration in 2010. That promise,
however, does not carry the same weight as in the past.
That's because, rather than delivering any additional benefit that voters
can actually take to the bank, carrying out such a pledge would do nothing
more than maintain the status quo. Nobody's taxes would be cut further; they
would at best stay the same. There's not as much political payoff in that.
And preventing anybody from being worse off is going to be incredibly
costly. Indeed, it requires running faster and faster just to stay in the
same place. A new report from the Congressional Budget Office on the
long-term budget outlook, delivered to Congress on Thursday, makes clear the
depth of the fiscal hole the next president will inherit from President
Bush.
Simply to extend the Bush tax cuts indefinitely into the future and, as both
Republicans and Democrats have vowed, prevent the alternative minimum tax
from imposing an increasingly heavy burden on tens of millions of
middle-class and upper middle-class taxpayers would cost the government,
over the next decade, roughly $2.5 trillion in revenues now expected under
current law. And that's just the beginning.
Even without taking on any additional tasks, merely meeting the government's
existing obligations - mostly to pay for the military and to keep up with
the health care and retirement needs of the elderly - would send the budget
deficit soaring, pushing overall federal debt held by the public from under
50 percent of the size of the nation's economy today to over 300 percent by
2050.
"The combination of roughly constant revenues and significantly rising
expenditures would quickly create an unstable fiscal situation," the budget
office report notes alarmingly, but in its characteristically dry and
understated manner.
How would the Republican candidates deal with this problem? Most say they
would try to hold down spending - and cut taxes even more.
Indeed, without providing many specifics about his proposed spending cuts,
Rudolph W. Giuliani, in a recent op-ed article in The Wall Street Journal,
wrote that he was "committed to making the 2001 and 2003 tax cuts permanent,
while aiming at still-lower marginal rates. We'll give the death tax the
death penalty, index the Alternative Minimum Tax for inflation as a step
toward eliminating it entirely, expand tax-free savings accounts, and expand
health-care choice through tax reform. We also need to reduce the corporate
tax rate."
Fred D. Thompson recently unveiled his own tax proposal, which would not
only match the Giuliani promises, but would also allow taxpayers to choose
between paying under the current system or opting for a "flat tax" with
lower rates that would eliminate nearly all deductions. The simplified tax
system would have just two rates: 10 percent and 25 percent.
The nonpartisan Tax Policy Center analyzed Mr. Thompson's overall proposal
and found that it would "represent, by far, the largest tax cut in history -
much larger than the tax cuts enacted in 2001 or 1981. Over 10 years,
individual income and estate taxes would fall by about $6 trillion to $7
trillion - or as much as 20 percent of overall revenues - before allowing
for any behavioral responses."
Mr. Thompson predicted that the tax cut would largely pay for itself by
stimulating economic growth and discouraging tax avoidance. If not, he
suggested, any additional savings could be achieved by limiting Social
Security benefits.
But the Tax Policy Center report found that any improvements to the economy
from lower tax rates would be modest. As a result, the Treasury would
recover no more than about $1 trillion over the decade, resulting in an
overall revenue loss of $5 trillion to $6 trillion. The tax cuts would fall
far short of paying for themselves.
And nearly all the money, like the earlier rounds of tax cuts this decade,
would flow to those at the top of the income ladder.
Meanwhile, Mike Huckabee has proposed yet a third alternative, endorsing the
so-called "fair tax," which vows to replace all federal revenues - income
taxes, payroll taxes for Social Security and Medicare, estate taxes, etc. -
with a national sales tax on everything except education.
Proponents say that a sales tax rate of 23 percent on just about all goods
and services would generate the same revenues as the current system, but tax
experts like Bruce Bartlett, a former Treasury official under President
Ronald Reagan, say that it would effectively mean raising the cost of
everything people buy by at least 30 percent.
And even if such a tax could be practically instituted, it would still not
close the fiscal gap that is about to explode over the next few years.
"Campaigns bring out the Santa Claus in politicians," said Leonard Burman,
director of the Tax Policy Center, which is associated with the Brookings
Institution and the Urban Institute. "But the numbers just don't add up. By
promising more tax cuts than we can afford, they are really misrepresenting
the choices the nation faces."
Democrats certainly have their own problems balancing their spending
proposals - particularly for health care - with the revenues available to
pay for them, but the Republican candidates, by vowing to extend President
Bush's tax cuts, have left themselves with a far bigger fiscal gap to fill.
So before the Republicans make any new tax promises, it might help if they
first told voters how they plan to pay for the old ones.
