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This week, we are reporting on what's likely to be the big debate in Congress this fall: whether to extend some or all of the tax cuts enacted during the Bush administration. Those tax cuts are due to expire at the end of the year. But President Obama wants to extend them for all but the wealthiest Americans.
NPR's Scott Horsley reports on the president's plan and why some worry it's the wrong move for a struggling economy.
SCOTT HORSLEY: There's been a lot of teeth-gnashing in Washington and around the country this year over the big federal deficit. But it turns out there's a way the government could cut that deficit to a manageable size in just five years: by doing nothing.
Ms. DIANE LIM ROGERS (Chief Economist, Concord Coalition): If Congress were to go home, not pass any new legislation, our tax policy alone, without any changes to projected spending, would get us to that sustainable level of deficit at least for 2015.
HORSLEY: Diane Lim Rogers is with the deficit watchdog Concord Coalition. She says if Congress simply allows the Bush tax cuts to expire on schedule this year, tax rates would revert to what they were in the Clinton administration. And the additional tax revenue would cut the river of red ink down to size. For President Obama, though, there's a roadblock to letting everyone's tax rates climb back to where they were in the 1990s. He promised in the campaign he wouldn't do it.
President BARACK OBAMA: If you make less than a quarter-million dollars a year, then you will not see your income tax go up, your capital gains tax go up, your payroll tax - not one dime.
Ms. ROGERS: He's in the uncomfortable position of having made that campaign promise, but yet also made a pledge to get the deficit down. I don't think he can keep both of those promises.
HORSLEY: Because, here's the thing, Roger says: The vast majority of Americans fall below that quarter-million-dollar threshold. Exempting 98 percent of the population from any tax increase might be good politics, but it really ties the government's hands when it comes to raising money.
Consider this: If everyone's tax cuts expire on schedule this year, the government stands to collect an extra $238 billion next year. Only about 15 percent of that would come from the very wealthy, those making more than a quarter million dollars. The rest - $202 billion -would come from everyone else. By letting everyone else off the hook for higher taxes, the president would add that much to next year's federal deficit. And Rogers, who writes the blog EconomistMom.com, says Mr. Obama can't blame that red ink on his predecessor, George Bush.
Ms. ROGERS: As soon as President Obama signs the legislation, they will be the Obama tax cuts. They're choosing to continue the policy that they blame for the terrible mess we're in.
HORSLEY: Former Federal Reserve Chairman Alan Greenspan argues the government should let all the tax cuts expire to keep from making the deficit worse. The president's former budget director, Peter Orszag, also called for an end to the tax cuts in a�New York Times�column�today, although Orszag said the government should wait a couple years until the job market is healthier.
The White House is pushing to make most of the tax cuts permanent. Spokesman Bill Burton argues that saving the typical family one to $2,000 would stimulate the economy.
Mr. BILL BURTON (Spokesman, White House): If you extend tax cuts for middle class families, you're putting money in the pockets of people who will spend that money in places where you're creating jobs.
HORSLEY: Well, maybe some jobs, but not many, considering the $202 billion price tag.
Mr. WILLIAM GALE (Co-Director, Tax Policy Center): Are there other ways to use that same amount of money that would give a bigger bang for the buck? The answer is definitely yes.
HORSLEY: William Gale is co-director of the Tax Policy Center here in Washington. He points to research by the non-partisan Congressional Budget Office.
Mr. GALE: CBO analyzed 11 different options for stimulating the economy. Extending the Bush tax cuts came in number 11 - the worst option, the lowest bang for the buck of any of the other options.
HORSLEY: If the government really wanted to give the economy a boost, the CBO says, it would be better to spend the money building roads and bridges, cutting payroll taxes or providing aid to the states. Gale points out the Bush-era tax cuts were never designed to be smelling salts for a faltering economy. When they were proposed a decade ago, the U.S. was booming and the federal government was running a surplus.
Mr. GALE: If we're going to talk about permanent tax changes, let's have a discussion of overall tax reform and ways to make the system better. Let's not just mechanically make permanent this thing that was passed in 2001 in a world that was very different than the one that exists now.
HORSLEY: The Obama administration's fiscal commission is studying prospects for broader tax reform, but its recommendations aren't due until December. And by that time, a decision on extending the tax cuts may have already been made.
Scott Horsley, NPR News, Washington.
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