BNA's RealTime yesterday noted Bush's call to lawmakers to make the 2001-2003 tax cuts permanent. Here's an excerpt of the BNA story:
Bush, speaking to a gathering of business leaders at the White House, suggested the nation's economic problems would be much worse today if Congress had not passed his tax relief packages in 2001 and 2003. He said lawmakers should now act to make them permanent.
"We are concerned about the economic slowdown," Bush said as Congress returned to town following the Memorial Day recess. "But one of the things [lawmakers] can do is make the tax cuts permanent." ... "It's a concept that worked," Bush said, detailing how years of economic growth resulted. But the president said that if Congress does not act to extend the tax cuts the result will be tax increases of $280 billion on average annually.
"Government has got to also understand that when someone's working hard, the more money they have in their pocket, the better off the country is," Bush said.
It might be worth parsing the Bush claims.
- the nation would be worse off without the Bush tax cuts? tax cuts are a concept that worked?
Bush would find it hard to support that claim. While there has been anemic growth under Bush with the tax cuts, it might well have been stronger growth and broader growth that benefited more people without the tax cuts (or with different tax cuts aimed more directly at middle and lower income households).
- if we're concerned about the economic slowdown, we must make the tax cuts permanent?
If the Bush tax cuts were so good for the economy, why is there an economic slowdown with the tax cuts in place, and why should anyone think that making the cuts permanent would improve the economy, especially since the Bush 2001-2003 tax cuts were sold on the basis of first, giving back a surplus (which no longer exists) and second, "growing" the economy so that the tax cuts would be almost "free" to the fisc. Fact is, the economic slowdown relates to a number of factors that tax cuts can't begin to deal with, such as manufacturing declines, decline of skilled and well-educated workers because of cuts in education, globalization that has moved companies to cheap-labor havens (and which has been encouraged by trade policies that disregard the detriments of global trade to workers and the environment), and costly energy that will impact economic growth for the next decade, particularly in areas that have been heavily dependent on fossil fuels (such as auto manufacturers and farmers). The Bush tax cuts had almost nothing to do with sound tax policy and even less to do with reasonable economic policy.
- If the tax cuts aren't renewed, it's a tax increase of $280 billion annually?
Not so. The 2001-2003 tax cuts were temporary provisions, just like many other temporary provisions. The tax cuts were put through with a promise about their cost that depended on them being temporary. Of course, Republicans in Congress hoped to pull the wool over the eyes of American taxpayers, and slip the cuts in permanently even though it would mean the biggest deficits we've ever seen in this country.
Putting a temporary provision in place is a claim that the default status is the Code without the temporary provision (i.e., the pre-2001 Code). The tax cuts were supposed to be a way to give the surplus back--well, that was achieved and more. The tax cuts were then supposed to provide temporary stimulus to the economy. Maybe, maybe not. The mixed message about the purpose of the tax cuts, of course, makes it even more unreasonable to now make them permanent. And making them permanent is a huge cost--$280 billion a year, at least. If the tax cuts are made permanent, that dough has to come out of somebody's pocket, meaning that we either borrow the money and pay it back later (at enormously higher tax rates, most likely, in order to pay off the debt and the interest) or we cut important government programs (just at a time when the cost of Mr. Bush's preemptive war comes home to roost, which will be somewhere upwards of $3 trillion, according to Stiglitz and Bilmes). The primary beneficiaries of the tax cuts have been taxpayers at the top of the income distribution, and it is hard to justify further benefits for them, when they have reaped enormous rewards from what little growth there has been while everyone else has stagnated.
- When someone's working hard, the more money they have in their pocket, the better off the country is
That's a true statement, but irrelevant to the question of making the 2001-2003 tax cuts permanent. A key element of the Bush tax cut regime is greater preference for income from capital--savings, capital gains, and dividends. That regime is primarily beneficial to people whose income is primarily derived from owning capital assets, and ownership of capital assets is highly concentrated among the top of the income distribution. While some who own capital assets also work, most hardworking taxpayers who earn most of their income from labor do not have significant amounts of capital assets and did not reap large benefits from these preferential elements of the Bush tax cuts. The Bush tax cuts also helped big business and cut corporate contributions to the fisc even further. The Bush tax cuts are just another element in the trend for the rich to get even richer, and the country is not better off when that happens. If any of the Bush tax cuts are made permanent, it should only be those that benefit ordinary taxpayers in the bottom 60% of the income distribution.
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