Let the Bush Tax Cuts Expire

Title says it all. That’s my view on the issue of Bush tax cuts. Let them expire, not just for the rich, but for everybody.

Although Greenspan has lot a credibility after the financial crisis, I agree with him on this. For his reasoning, listen to what he said on Bloomberg TV (fast forward to 2:47) or read second hand from the New York Times article.

President Obama’s former budget director Peter Orszag also said in his op-ed in New York Times that we should end the tax cuts, not now, but two years from now:

One Nation, Two Deficits

I say we should stop fooling ourselves with this kind of false delays. If we don’t have the resolve to end them now, we won’t have it in two years either. We might as well do the right thing and end them now.

We don’t have the money to extend the tax cuts permanently, not even for folks earning $250,000 or less. If people were against the tax cuts when they were enacted, they should just let them expire as scheduled, not extend them permanently in any shape or form.

The tax cuts were created in 2001 and 2003, in the middle of a stock market bubble burst, as temporary measures to stimulate job growth. Whether they accomplished their objectives is debatable. In any case, their mission is over. Everybody knew the laws would expire by the end of 2010 from day one. There is no expectation for them to continue beyond the sunset date. That was what the country bargained for. We should stick to it.

CCH published a summary briefing on how exactly the sunset affects taxpayers:

Sunsetting Benefits of the Economic Growth and Tax Relief Reconciliation Act of 2001

It included three hypothetical profiles and how the expiration will affect them. The numbers in the table below shows the change in taxes between sunsetting and extending the tax cuts and between Obama’s proposal and extending the tax cuts.

Sunset Obama proposal Difference
(1) Married, $142k income +$6,830 +$0 -$6,830
(2) Married, $355k income +12,929 +$5,151 -$7,778
(3) Single, $76k income +$1,598 +$0 -$1,598

Higher-income households still benefit a lot more from Obama’s proposal than lower-income households. The cost of extending the tax cuts for ten years is said to be $4 trillion. Obama’s proposal is said to save $700 billion from that, which means it still costs $3.3 trillion. We can’t afford it.

A tax cut is great if we can afford it. It’s just like going on a vacation. I like the days when I’m on vacation. I don’t have to work. Paychecks still come in. It feels great. But a vacation always comes to an end, because I can’t afford to be on vacation forever. In terms of taxes, the country has enjoyed a long vacation in the last several years. Now it’s time to get back.

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Comments

  1. Mr. ToughMoneyLove says

    Why don’t we use your logic and end the myriad of refundable tax credits that have been created or increased over the past decade. That way, the 50%-60% of working adults who now PAY NO INCOME TAXES can participate in supporting government spending. Let’s end their tax-free vacation as well.

  2. Investor Junkie says

    Only if there are MASSIVE budget cuts, otherwise it’s money down the rabbit hole. The more money the govt gets, the more they spend.

    Either way no matter what the rates are or aren’t changed to the amount of taxes collected come in around 18% of GDP.

  3. Frustrated Beyond Words says

    It’s not the government’s money. They have not demonstrated that they know how to responsibly spend the money that they already take from me.

    Accepting in any form, call it expiring tax cuts or WHATEVER, the government, and this government in particular, gets more of my money is unacceptable.

  4. Pelon says

    I would also like to see the tax cuts expire. This should be in addition to large cuts in government spending. Before the recession we were running $300 – $400 billion deficits (not counting social security and medicare). Even if you remove the stimulus spending, we are probably still running deficits of around $500 billion per year due to reduced tax receipts (not counting social security and Medicare).

    For those who think we can make up the difference by reductions in government spending, what do you propose cutting? Social Security? Defense? Education? Medicare? They will all need to be cut anyway, but the reductions needed without more revenue would be massive.

  5. Pelon says

    If you eliminated half of Defense spending, you would save about $350 billion. We would still be running a substantial deficit of around $150 billion.

  6. Harry Sit says

    Lack of revenue has not stopped the government from spending. Witness the massive budget deficit and national debt. Whenever the question of budget deficit comes up, people always say raise taxes. After taxes are raised, people will have to get serious about spending because there won’t be any excuses.

  7. Dirac says

    I am confused, how does the higher bracket benefit more than the lower bracket? Are they now paying less taxes than the lower? You made this statement but I do not follow the reasoning.

  8. Harry Sit says

    @Dirac – If the tax cuts expire, tax from the household with $355k income is supposed to go up by $12,929. Under Obama’s plan, it goes up only by $5,151. That’s a reduction of $7,778, i.e. Obama’s plan cuts the higher income household’s tax by $7,778. By contrast, it only cuts the single $76k income household’s tax by $1,598.

    Compared with letting the tax cuts expire, Obama’s plan still favors the rich, and it still costs the country a lot of money: $3.3 trillion over 10 years, and god knows how much afterward. It is still a very bad plan for the country. Extending the tax cuts permanently for everybody is worse, but not that much worse. So we are really talking about the pot calling the kettle black here.

  9. Jim Foley says

    I think your logic on the tax cuts expiring is flawed and somewhat short sighted. Actual Federal tax revenues were higher at the end of the Bush years than during any previous time period. Tax policy is complicated. It is not a zero sum game where for every winner there is a corresponding loser. In the real world people adjust their decision making as tax policies change. If the business climate is more favorable the economy expands and we all benefit. Even the government benefits by collecting more taxes. When the business climate is less favorable, like since 2008, the economy contracts and we all lose. This is an often misunderstood concept. Most Americans accept the populist rhetoric that a rich persons gain comes at the expense of someone at the lower end of the economic ladder.

  10. Harry Sit says

    Mike – Your link led me to this article A Case for Killing All the Tax Cuts, which says letting all the tax cuts expire will cause a short-term pain but reap a long-term economic gain. Of course we know politicians always prefer a short-term gain at the cost of a long-term damage to the economy.

  11. Ace says

    TFB, your logic on Obama’s cuts favoring the rich is baffling. By your logic, Obama could send the single $76k income household a check for $5,000 and the cuts would still “favor” the rich household thatis still paying taxes. If you operate from the premise that all money belongs to the government and they just let us keep a certain amount, then I suppose the government is letting the wealthy household keep more. Otherwise, I cannot accept that a household paying a $5,151 tax increase is getting a better deal from Obama’s proposal than a household whose taxes are not being increased.

  12. Doctor Stock says

    Ahhh… it’s time to cut spending and taxes. Bring responsibility back to the leadership as well as to the financial picture of the average person. When will we quit spending more than we make? It doesn’t seem like rocket science.

  13. Celtic86 says

    TFB, the actual delta between the highest earner and lowest earner in the example is pretty much nil. The tax savings for the $355k household is 2.19% of income, while the tax savings for the $76k household is 2.10%. When we’re talking about .09 of a percent difference, I think we can call it a wash. Couple that with the fact the $355k earner is paying orders magnitude (and in some cases literally infinitely) more in taxes than the bottom half of the populace, and I have very little sympathy for those who gripe about the rich ‘not paying their fair share’.

    I’m also with Frustrated Beyond Words and his position that this (or any) government doesn’t do as good a job with our money as we do. Show me you can manage what you already take in (which is far too much), and then let’s talk about your taking more. How did we get to a state where I work until April whatever it is to actually start bringing home my own paycheck?

  14. m75 says

    Cut spending, even Mr. Greenspan says in a recent interview on PBS he would prefer spending cuts however he bemoans that Congress just will not cut spending. WHAT? I have to pay more taxes because we have an irresponsible government. Cut spending and cut it deep.

  15. Susan says

    Cut spending. It’s so obvious. Don’t expect the taxpayers to pay for the legislators’ bloat. They are the ones who need to go on a spending diet. How is this economy supposed to heal itself if those who are working get to keep less of what they make? TFB, you surprise me.

  16. Harry Sit says

    @Susan – To all who said we should cut spending, I’m all for that. What to cut is the question. If watch the I.O.U.S.A. Solutions video I linked in the other post, you will see the largest items in spending are defense, Medicare, Social Security, and Medicaid. The rest don’t amount to much even if they are eliminated completely. Taxes were higher prior to 2001. Economy did just fine in 1990s.

    Politicians drilled into our heads we can get something (defense, Medicare, Social Security, Medicaid, etc.) for nothing (low taxes). We can’t. Either pay up or cut the programs. Or give and take on each side.

  17. Susan says

    @TFB, I don’t want to get into politics (though I think we just did) but there’s plenty of fat to be cut from the Fed budget, like all the new green programs, for example, that don’t really help the environment at all. But more importantly. with one exception, every year that income tax rates have been cut, tax revenues have gone UP. When you let people keep more of what they earn, you are enabling them to earn more. This might strike you as counter-intuitive, but it is a fact: cut taxes, increase revenue. Let me know if you want the links to the numbers.

  18. Investor Junkie says

    @Susan: I’m also for cutting the budget but things like ‘green’ programs are nothing. I also agree should be cut but they are a drop in the bucket compared to Medicare, Social INSecurity and Medicaid.

    These I DO think should be cut.

    Also taxes in relation to GDP has always been around 18. No matter how much they raise or lower taxes. So related to this post they can increase taxes all they want, they still will get around the same amount and some of it is related to the Laffer Curve.

  19. Pelon says

    @Susan – This has nothing to do with poitics, it is about the cold, hard fact that we have been spending more than our revenue for years, our future obligations are massive, and we will eventually have to do something about it. The longer we wait, the harder it is to fix the problem.

    If we cut all “green” programs, you are still looking at $100s of billion of dollars in deficits. What else are you going to cut?

    “This might strike you as counter-intuitive, but it is a fact: cut taxes, increase revenue.” That is most definitely not a fact. There may be situations where that is true, but there are many situations where that is demonstrably false. For instance, if we reduce the tax rate from 25% to 0%, how does that increase revenue? At best, you can say that there is an optimum rate where we maximize the amount of taxes collected.

  20. william says

    Stop the Bush Tax Cuts, Stop the Child tax Credit, Give reduction in Food Stamp Programs, housing assistance, Then we all can sing CHANGE.
    I quarentee work will be more important if you dont get nonething for non-working programs are killed.
    William

  21. TEEEMMMAAANNN says

    15 PERCENT ACROSS THE BOARD = 555 BILLION
    NO BUSH TAX CUTS = 900 BILLION
    2006 DISCRETIONARY LEVELS = 100 BILLION

    = BALANCED BUDGET

    DO IT NOW.

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