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Repeal Bush Tax Cuts - Solve Deficit

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September 23, 2010 – Comments (5)

There was a fascinating news article, and due to its simplicity, it makes one remember the wonderful quote of Bart Simpson "He says there aren't any easy answers. I say, he's not looking hard enough!".  The argument is that by simply letting the Bush tax cuts end, the deficit is nearly solved.

Now that's EASY!  Congress doesn't do anything, let the tax cuts expire, and we've got our financial house back in order.

Just like the people preying on those near foreclosure, this is also a fraud!

First and foremost, Peter Orszag, who made this prediction, is basing his assumption on NO CHANGE in the expected growth of the economy that HIS department (OMB) estimated.  The OMB is predicting as follows:

2010 3.1%
2011 4.0%
2012 4.3%
2013 4.2% 

Those are some nice number!  Hell, I could balance the budget if you let me make up numbers like that.  Here's what the OMB said just over a year ago:
"CBO was projecting a 2009 baseline deficit of $207 billion. It is now projecting a baseline deficit of about $1.7 trillion. CBO itself has estimated the margin of error around its 5-year deficit projection to be about 5 percent of GDP in either direction—which means the confidence interval around the 2014 deficit is plus or minus about $900 billion." LINK

So there deficit projection in 2009 was off by over $1 trillion dollars, yet they argue in the very next sentence that their future estimates are with a margin of error of 5% of GDP (only about $900 billion).  (1) Where can I get a job to predict budget deficits that are only off by +/- $900 billion? (2) Does this job pay well?  (3) Do news sites like NPR actually take you seriously? Answers below

And what about those rosy growth scenarios of 2010-2013? Even IHS (which is far too rosy in its love affair of the Federal Reserve) stated last month that it expects growth to slow to 1.3% for the first qtr of 2011 budget year (November through January). LINK

Now lets tell every American family of four that earns $50,000/year that their taxes are going up $3,000/year. (LINK) Take off your partisan hat and ask yourself "Are we going to be anywhere near 4% growth in 2011?"  Then ask yourself a second question "Since we're not going to be anwhere near 4% growth, what happens when the average family watches 7% of their income immediately taken away by taxes?"  Forget double-dip, it's going to be a massive contraction in spending - but WORSE, there won't be enough money for the middle class to save, it will just go directly to the tax man and to make ends meet the consumer will still have to borrow.

I don't ask you to believe that extending the Bush tax cuts will make the deficit go away, but this fairy tale propogated by Orszag is nothing more than spin saying "We aren't spending too much, its just those darn Bush tax cuts!"

Do you want an easy solution?  I have one, but while it's easy to say it won't be easy to get through Congress, but it will work and I'll blog about it tomorrow.

Answer Legend:
(1) You need to know someone.  It's all about connections, not competency.
(2) ~$200,000
(3) Sadly, yes

 

5 Comments – Post Your Own

#1) On September 23, 2010 at 3:55 PM, davejh23 (< 20) wrote:

Hasn't the CBO projected $1 trillion+ deficits through 2020?  I'd bet they stay within that margin of error from now on...unless we start running a surplus somehow or annual deficits surge to $2 trillion+. 

In any case, "let the tax cuts expire, and we've got our financial house back in order"?  Is there something I'm missing?  Letting the tax cuts expire will not bring us anywhere near a balanced budget.  We would need to nearly double all federal income tax rates to balance the budget with tax increases.  We probably need to cut federal spending by about 70% AND increase taxes at some point to get our financial house back in order...closing the budget gap alone won't even cut it...we can't roll over our short term debt at ridiculously low rates forever.

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#2) On September 23, 2010 at 4:02 PM, SkepticalOx (99.45) wrote:

I think everyone should be watching (if they aren't already are) what they're doing in the UK. The conservatives in power raised taxes and cut spending. Let's see how they fair.

I'm not sure if you are trying to suggest that they extend the Bush tax cuts? If you're trying to reduce the deficit, extending tax cuts or keeping tax rates the same is not the answer. You either raise taxes or cut spending. Austerity!

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#3) On September 23, 2010 at 6:34 PM, leohaas (32.24) wrote:

"So there deficit projection in 2009 was off by over $1 trillion dollars..."

Not exactly. The deficit projection "at this point last year" was lower by over $1 trillion. Orzag's article to which you link was written in March of 2009, so the "at this point last year" is March 2008.

In March 2008 the Bush administration was still in office. They weren't going to stimulate the economy. By March 2009, Obama was in office. The $1 trillion difference between the 3/2008 estimate and the 3/2009 estimate can almost fully be attributed to a change in policy: the stimulus.

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#4) On September 24, 2010 at 9:23 AM, ckd5555 (< 20) wrote:

"Now lets tell every American family of four that earns $50,000/year that their taxes are going up $3,000/year."

Not to bust your bubble, but I think you're off by about $1500 a year.   Taxes will increase for a family earning $50,000, but after deductions (children, interest, medical expenses, etc.) My guess is that taxable income for the average $50k family comes down to $35,000.  On that amount, assume a 3-5% increase and you get $1000-1500.

The real impact is on the rich.

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#5) On September 24, 2010 at 10:04 AM, FreeMarkets (92.39) wrote:

#4 - See link.

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