Making the Bush tax cuts permanent will kill the U.S. economy. Film at 11.
Per Ezra Klein today:
CBO Director Doug Elmendorf testified before the Senate Budget Committee today and dropped something of a bombshell. Extending the Bush tax cuts, he said, will “probably reduce income relative to what would otherwise occur in 2020.” The reason is simple: Debt.
Elmendorf doesn’t deny that tax cuts stimulate the economy. But they don’t stimulate it that much, he says, and over the long run, the net economic growth from the tax cuts will be quite small. The net deficit impact won’t be. “Lower tax revenues increase budget deficits and thereby government borrowing,” Elmendorf said, “which crowds out investment, while lower tax rates increase people’s saving and work effort; the net effect on economic activity depends on the balance of those forces.” True to form, he brought a graph:
To be sure, the damage George W. Bush and his tax cuts did to the American economy is staggering. His was the worst eight-year economic record of any modern president. Poverty is at its worst in sixteen years. As the Census confirmed yesterday, by 2007 the U.S. reached levels of income inequality not since 1929. And as tax expert David Cay Johnston recently documented, “total income was $2.74 trillion less during the eight Bush years than if incomes had stayed at 2000 levels.”
And then, as Elmendorf warned, there’s the debt. After all, the national debt doubled during Bush’s tenure. The Center on Budget and Policy Priorities demolished the mythology promoted by President Bush (“You cut taxes and the tax revenues increase”) and the usual suspects on the right. CBPP found that Bush tax cuts accounted for almost half of the mushrooming deficits during his presidency. And asanother recent CBPP analysis revealed, over the next 10 years, the Bush tax cuts if made permanent will contribute more to the U.S. budget deficit than the Obama stimulus, the TARP program, the wars in Afghanistan and Iraq, and revenue lost to the recession put together. Worse still, Elmendorf reiteratedthe CBO’s previous conclusion that the Treasury-draining tax cuts, especially for the wealthy, provide comparatively little “bang for the buck.”
Nevertheless, Republicans in their GOP Pledge to America promised to exhume Jason in a $4 trillion budgetary nightmare that the Economic Policy Institute estimated would trim 1.1% off the nation’ gross domestic product.
On the tax cuts, put me down as wholeheartedly supporting former Ronald Reagan budget director David Stockman, who told ABC’s Christiane Amanpour this week:
“This is not 1981,” the former director of the Office of Management and Budget said on ‘This Week’ in an exclusive debate with Rep. Mike Pence, R-Ind. “This is not ‘morning again in America.’ We have drifted now for 30 years,” Stockman told anchor Christiane Amanpour. “Both parties, unfortunately, became free lunch parties: Republicans cutting taxes any time they had a chance, never doing anything about spending; Democrats digging in to defend everything that was there. As a result, we now have this massive deficit.”
“We’re now becoming the banana republic [of] finance, printing — the Fed, these mad men who are out of control at the Fed are printing — new money equal to 100% of the debt that we’re issuing each month. This will not end well,” Stockman said. “It’s going to end in a disaster.”
Stockman threw in some more controversial notions, saying Medicare should be sharply scaled back, Social Security means tested for current, not just future beneficiaries, and defense spending cut, too, all of which you can agree or disagree with (though it’s hard to argue with him on the fiscal merits) but his bluntest statement, with which I find nothing to dispute, was this:
“Two years after the crisis on Wall Street, it has been announced that bonuses this year will be $144 billion — the highest in history. That’s who is going to get this tax cut on the top, you know, two percent of the population. They don’t need a tax cut. They don’t deserve it. And, therefore, what we have to do is focus on Main Street and that means getting our house in order fiscally, not tax cuts that we can’t afford,” Stockman said.
Stockman explained that raising taxes is normally “a bad thing to do,” but that the United States “is in such dire shape that we have no choice but to accept the negative trade-off of some harm to the economy to start paying our bills,” he said. “Otherwise, we’re dependent on the Chinese, we’re dependent on OPEC, we’re dependent on a bunch of hedge-fund guys to buy our debt and this game is about over.”
It seems to me that this issue is so critical to this country’s economic future, and so misunderstood, particularly by the Republican base, and so distorted by the Kochtocracy that’s leading the tea party people by the nose, that it’s worth the president sitting the American people down — with charts — and having a very sober, family chat. The president should make this priority one — he should secure a prime time slot, and explain, not give a speech, but simply look into the camera and explain — that the American family cannot afford these tax cuts. We simply can’t afford the reduction in national income, or the massive debt that George W. Bush unleashed in 2001 when he turned a surplus into a yawning deficit. All Americans have to tighten our belts, and that means you can’t have massive tax cuts for the rich. In my opinion, all should share the “pain” equally, and we should junk the Bush tax cuts altogether. That way no one can whine about “class warfare,” and our budget would come suddenly very close to balance.
Short of that, the president should threaten to veto any bill that comes to his desk with the top 2 percent tax cuts in them. Period. If he does that, he will regain his standing with the dispirited part of his base, and he will have demonstrated that on fiscal matters, he is indeed the sober, confident grown-up we elected.
We are being carjacked, Mr. President. The Kochtocrats are putting a gun to America’s head and demanding we empty our wallets and hand over our cash and jewelry. They are threatening the most vulnerable people in this economy — the jobless — with hazard if they don’t get the money; not just permanent, budget-killing tax cuts for themselves and their corporations, but also an elimination of the estate tax that would take us back to the 1890s or 1920s, lurching us back into a country of permanent aristocracy and plutocracy.
It’s your job not just to stop them, but to explain to the American people what has to be done in order to get this country’s fiscal house in order, painful though it may be.
Step up to the plate, Mr. President. Your country is depending on you.
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