The Joint Committee on Taxation (JCT) released its "Estimated Budget Effects of the Revenue Provisions Contained in the President's Fiscal Year 2010 Budget Proposal As Described by The Department Of The Treasury, May 2009," JCX-28-09, June 11, 2009. The JCT uses different modelling than the Treasury, so its numbers provide somewhat of a reality check on Treasury's calculations--or, at least, a second opinion to be taken into account. Overall, the JCT concludes that the revenue projections will raise about $50.6 billion less than Treasury projected from changes in rules affecting taxation of offshore profits, and would add about $2.9 trillion to the deficit over a decade.
Republicans are suddenly making noises about deficits. If you listen to them on the various talk shows, you'd think they'd been the most prudent administrators ever in charge of a government. Yet today's deficit--like Reagan's and Bush I's and Bush II's--is primarily due to decades of GOP-led borrow-and-spend policies (coupled with tax cuts for the rich, military contractors that are funded by consistently high military spending during war, and privatization of many fundamental governmental services, such as defense). For years under the Bush Administration, Republicans led a borrow and spend approach to government, with fiscal restraint thrown to the wind. See, e.g., Robert Kuttner, What Killed Off the GOP Deficit hawks?, BusinessWeek.com, Dec. 27, 2004 (noting the Reagan tax cut-and-spend deficits caused Bush I to have to raise taxes but, as Concord Coalition Bixby commented, "Republicans are the ones making excuses for big deficits"). Supply siders decided deficits didn't matter because tax cuts could raise revenues, and government haters wanted deficits to make problems so that they could end government services. Id. The Democrats, of course, are emphasizing this imbalance of priorities in their agenda to stimulate the economy, improve human and physical infrastructure, and enact health care reform. See, e.g., "Democrats are Working to Reverse the Republican Deficit that is Crippling the U.S. Economy", DPC, Apr. 3, 2009.
Just one example of the problem is evidenced by the Bush Congress' handling of the whopping 2001-2003 tax cuts and the AMT: it intentionally left the AMT positioned to catch more taxpayers because they knew that the cost of lowering the AMT rates to correlate with the lower regular tax rates would be prohibitive. Yet they intended all along to bear that prohibitive cost, funded by borrowing, by patching or repealing the AMT so that it wouldn't apply to that large group of "just wealthy" upper-class Americans in the $200,000-$500,000 annual AGI range. See my 2004 article on the AMT, "Congress Fiddles ," still timely and relevant, for a fact-flled and detailed analysis of the budgetary issues, the normative concerns that should govern our thinking about the AMT in the context of the Bush tax cuts, and the best alternatives for AMT reform. Or you can read the six-part series on the AMT that captures the meat from the article, on the blog: What Should Congress Do About the AMT? (Part I); Part II; Part III; Part IV; Part V; and Part VI. Here's my last paragraph on the issue.
[W]e should deal courageously with the problem by thinking about what we want our tax system to do and how we can approach the system that currently exists to best deal with the increasing tax burden on the lower and middle quintiles as well as the increasing inequality between the haves at the top of the income distribution table and the rest of America. Let's have a regular tax system that can be simplified considerably by using the AMT system to impose a more significant tax on the wealthy investor class. Let's protect ordinary taxpayers by using a simple income determination to exclude almost all of them from even having to think about the AMT. Then we can also simplify the AMT by harmonizing it with the regular tax wherever it makes good tax sense, as in the treatment of ability-to-pay deductions. Finalloy, let's pay for that indexed income threshold and harmonization by changing the way we tax net capital gains. Leave them as a preference in the regular tax system, if we must, but add them as a tainted preference requiring adjustment in the AMT system, if we can. That would be the best way to ensure that the wealthy investor class pays its fair share of the tax burden. Who knows, with the revenue gains, we might even be able to pay off some of that debt and move away from being the biggest debtor country of the developed world today.
Those borrow-spend (and tax cut) policies of the GOP decades are now coming home to roost, as we deal with the financial crisis from decades of deregulation and privatization as well as the staggering long-term costs of the two Bush wars at a time when we should be devoting resources to repairing aging infrastruture and serving fundamental human needs like health care and education. The Democrats, of course, are emphasizing this imbalance of priorities in their agenda to stimulate the economy and enact health care reform. See, e.g., "Democrats are Working to Reverse the Republican Deficit that is Crippling the U.S. Economy", DPC, Apr. 3, 2009.
What ordinary Americans should take note of is the cost of making the Bush tax cuts permanent. The JCT document (see top) is revealing. Let's look at the 10-year cost of items that I think are particularly indefensible as part of a normatively sound income tax that treats everyone fairly:
- Even with the slight bumpup to the old 20% CG rate for the highest bracket taxpayers, the low 0%/15% rates for capital gains and dividends enacted under Bush will cost almost $225 billion.
- The Section 179 expensing provision--claimed to encourage additional investment but most likely only a tax giveaway for investments that would be made anyway--will cost almost $21 billion.
- Retaining the 25% bracket and expanding the 28% bracket will cost almost $449 billion.
- Extending the AMT patch--The JCT doesn't give a number for the ten-year cost of the AMT patch protecting mostly upper-class taxpayers (it is aggregated with numerous other provisions), but we can assume that it would be at least $70 billion a year, or $700 billion over the decade.
- Making the Wal-Mart Estate Tax giveaway permanent (45% rate on nonexempt estates, with exemption at $7 million for a couple) would cost almost $234 billion.
Note that making permanent these Bush changes--which almost exclusively favor the well-off and the extremely well-off--will cost the government a total of at least $1.6 trillion over the decade. That's enough to make a substantial reduction in the debt or to pay for a number of the substantial human and physical infrastructure projects the country desperately needs. (The JCT allots more than 2 trillion to making the 2001-2003 tax cuts permanent, but I have selected those that are most egregious because they are almost exclusively targeted at the well-to-do.)
There's another set of tax cuts in the Obama proposals that should be eliminated that would raise another $75 billion for important government functions. That's the business tax cuts that have never lived up to their promise of stimulating the economy but instead have simply funneled more money to wealthy families and corporations, i.e.:
- eliminating CG tax (and the AMT preference) on small business stock --$6 billion
- making the R&D credit permanent--$67 billion
Another $4.5 billion would be added by not extending the subpart F active financing exception (this lets Big Banks defer tax on their offseas passive income) and the controlled foreign corporation look-through provisions (this favors the MNEs that operate businesses offshore).
And let's not overlook the money we could save from not applying the 100 percent-of-net-income limitation on the percentage depletion for oil and gas companies--about 100 million--and all those other Big Oil favorable tax provisions enacted by the oil-friendly Bush regime. Repealing LIFO accounting has been proposed by the Obama administration, and is priced out here to raise almost $80 billion in revenues. That's a good provision to enact, and there will be a strong lobbying countereffort that Congress will have to resist.
There are numerous other "extender" provisions that don't make sense and shouldn't be extended--permitting a tax-free distribution of up to $100,000 from an IRA to a charity, enhancing the charitable deduction for computer contributions, 7-year recovery for NASCAR tracks, and similar provisions.
The lesson from these difficult times is that we will need to raise funds to pay for the huge payouts we've made to haul the economy back from the brink to which it was brought by the risky speculation of Big Banks and the aggressive tax avoidance of most multinationals. Wouldn't it make sense to raise those revenues from provisions that act for the benefit of those institutions, as well as from those wealthy individuals who gained the most from the borrow-and-spend policies of the past?
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