$11.6 million every hour of every day. That’s how much money would be flowing into the US Treasury, but isn’t, as a result of the Bush tax cuts for the wealthiest 5 percent of Americans.
Though they were originally set to expire in December 2010, President Obama extended the Bush tax cuts through 2012, and some members of Congress propose making them permanent. Another decade of these lower tax rates for the wealthiest 5 percent – taxpayers who make at least $176,000 and on average $477,453 – would cost the Treasury around $2 trillion, according to analysis by Citizens for Tax Justice, and corroborating analysis by other tax organizations.
Incidentally, $2 trillion is more than the amount of deficit reduction mandated (at least $1.2 trillion) in the Budget Control Act. That’s the August deal that prevented a government shutdown and possible US debt default after the congressional standoff on whether to raise the US debt ceiling. The law formed a Congressional Joint Select Committee on Deficit Reduction, known as the “super committee,” now tasked with finding a trillions plus in savings – an amount that wouldn’t even fully offset another decade of Bush tax cuts for the wealthiest.
On the other hand, letting the tax cuts expire for the top five percent would accomplish more than the Budget Control Act’s required deficit reduction without slashing government programs, at a time when many economists warn that reduced public spending would exacerbate the weak economy. While the September jobs report found that the private sector added jobs, the public sector had shed 34,000 of them – and further cuts in spending would force more public workers into the ranks of the unemployed.
Closing the deficit is important, but when times aren’t so good, most economists believe there is a vital role for deficit spending on stimulus efforts. A recent letter from eight prominent economists – including five Nobel laureates – to Congress and Mr. Obama warned of the devastating effects that a balanced-budget amendment would have on the US economy. The signatories noted that extra government spending helps buoy the economy during a recession. In other words, sometimes red ink is better for the economy than slashing spending. Many economists think America needs more stimulus spending at this point in the economic recovery, not deficit reduction.
Extending tax cuts for the wealthiest makes for bad stimulus. Since people in this income bracket aren’t generally cash-strapped, they are likely to save rather than spend much of that extra money. This phenomenon underscores why the Bush tax cuts failed to spur economic growth when they were first enacted, and why reversing them for the wealthiest five percent won’t cause an economic meltdown, either.
Recent analysis by the nonpartisan Congressional Research Service predicted that restoring higher tax rates on wealthy Americans – including raising the capital gains tax – would not harm small businesses or investment. And Douglas Elmendorf, director of the Congressional Budget Office, said in testimony before the super committee that “the negative effects of the extra debt” from tax cuts for top earners outweighed any positive benefits to the economy from keeping those tax rates low.
On the other hand, programs like unemployment compensation make for efficient stimulus, because the least well off spend those cash benefits quickly, pumping needed funds into the economy.
Doing away with the Bush tax cuts for the wealthiest Americans would exceed the super committee’s deficit reduction goal and let us put federal dollars toward more urgent problems – especially the persistently high unemployment and underemployment that have pushed millions of Americans into poverty.
Mattea Kramer is senior research analyst at National Priorities Project.