Dick Morris, purporting to be an expert on the deficit from working in the Clinton White House, attacked President Obama for proposing to let the Bush tax cuts for the wealthiest Americans expire, claiming that "is just a method of increasing the deficit." In fact, extending tax cuts actually adds to the deficit.
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Morris' economic FAIL: Letting tax cuts expire will increase the deficit
Morris: Letting Bush tax cuts for wealthy to expire is "just a method of increasing the deficit." On the September 8 edition of Fox News' Fox & Friends, Morris argued that not extending the Bush tax cuts for the wealthiest 2 percent in America "is just a method of increasing the deficit, increasing the debt." Morris contrasted Obama's position with that of former President Bill Clinton, who "understood that the solution to the recession was to cut the deficit."
In reality, extending the tax cuts will increase the deficit
CBO estimates extending the Bush tax cuts for wealthiest Americans would cost $700 billion. According to Congressional Budget Office (CBO) estimates, extending all of the Bush tax cuts would reduce revenue by $2.7 trillion through 2020. Allowing the tax cuts to expire only for those making more than $200,000 a year (or couples making over $250,000) would save an estimated $700 billion:
CBO's baseline incorporates the assumption that major provisions of EGTRRA, JGTRRA, and ARRA will expire as scheduled at the end of 2010. If those and all other tax provisions scheduled to expire during the projection period were extended through 2020 (and the AMT provisions remained unchanged), total revenues over the next decade would be $4.9 trillion lower than in the baseline, according to estimates by JCT and CBO. That estimate reflects the fact that an increase in the number of taxpayers subject to the AMT would partly offset the effect of lowering the amount of taxpayers' regular liabilities. Of that $4.9 trillion reduction, $2.7 trillion represents the impact of extending only the tax provisions enacted in EGTRRA and JGTRRA. If certain income tax provisions of those two laws were extended just for married taxpayers with income below $250,000 and single taxpayers with income below $200,000 -- as the President has proposed -- the revenue reductions would total almost $2 trillion over the 2011-2020 period.
JCT: GOP plan "to extend tax cuts for the rich would add more than $36 billion to the federal deficit" in just one year. The Washington Post reported that "[a] Republican plan to extend tax cuts for the rich would add more than $36 billion to the federal deficit next year -- and transfer the bulk of that cash into the pockets of the nation's millionaires. ... New data from the nonpartisan Joint Committee on Taxation show that households earning more than $1 million a year would reap nearly $31 billion in tax breaks under the GOP plan in 2011, for an average tax cut per household of about $100,000."
Orszag: It would be "particularly problematic if the high-income tax cuts are made permanent -- at a 10-year cost of more than $700 billion." In his New York Times column, former White House Office of Management and Budget director Peter Orszag explained that while he favors temporarily extending the Bush tax cuts for two years and then letting all of them expire, making the cuts for the wealthiest permanent would be "particularly problematic":
In the face of the dueling deficits, the best approach is a compromise: extend the tax cuts for two years and then end them altogether. Ideally only the middle-class tax cuts would be continued for now. Getting a deal in Congress, though, may require keeping the high-income tax cuts, too. And that would still be worth it.
Why does this combination make sense? The answer is that over the medium term, the tax cuts are simply not affordable. Yet no one wants to make an already stagnating jobs market worse over the next year or two, which is exactly what would happen if the cuts expire as planned.
Despite a dire fiscal outlook, many progressives want to make the tax cuts permanent for all but the very highest earners. Many conservatives are even worse: they'd make the tax cuts permanent for the likes of Warren Buffett, even though he'd prefer they didn't. Making all the tax cuts permanent would expand the deficit by more than $3 trillion over the next decade.
Finally, a key part of this deal is actually ending the tax cuts in 2013 -- and that will surely require a presidential veto on any bills to extend them after that. (Failing to follow through would be particularly problematic if the high-income tax cuts are made permanent -- at a 10-year cost of more than $700 billion.) Minimizing this risk requires as much upfront clarity and commitment as possible, including a strong and unambiguous veto threat from the president.
White House Budget calls for "Upper-Income" tax increases "devoted to deficit reduction." From the White House's proposed budget:
CBO scores "[d]effering the scheduled increases in tax rates" as the lowest-scoring policy proposal to stimulate economy. In a January 14 report on "Policies for Increasing Economic Growth and Employment in 2010 and 2011," CBO stated:
[P]olicies that would temporarily increase the after-tax income of people with relatively high income, such as an across-the-board reduction in income taxes or an increase in the exemption amount for the AMT, would have smaller effects [than other options] because such tax cuts would probably not affect the recipients' spending significantly.
According to a table in the report, CBO estimated that reducing income taxes in 2011 would have the least stimulative effect of the policy options considered.