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Dem Leader Endorses Extending Bush Tax Cuts, Again

August 30, 2011 - by Donny Shaw

On jobs, Congress is probably not going to do anything. On deficits, however, expect Congress to act.

It’s an unfortunate situation. Without congressional action on jobs, the unemployment rate is expected to stay around 9% — or even get worse — until 2014 or so. But on deficits, if Congres doesn’t act the problem will basically take care of itself. As the CBO explained recently, under current law, annual deficits are on track to shrink from where they are today (8% of GDP) to about 1% of GDP by 2015. That’s because Congress’ of the past created policies with expiration dates and controls that were designed to prevent them from being perpetual drains on the budget. For example, the 2003 Bush tax cuts were passed under special rules that make it easier for the majority party to overcome minority opposition for controversial legislation, but, in exchange, require the legislation to expire after 10 years. Other examples include the Alternative Minimum Tax and the formula the government uses to reimburse doctors under Medicare, both of which are “patched” by Congress year after year so that they don’t end up raising taxes too much or reducing doctor pay.

The problem, however, is that doing nothing and letting these sunsets and budget controls do their job is that it would mean more of the burden would get shifted to people and interests groups with money and political influence. For that reason, Congress is not likely to keep their hands off.

Check out Rep. Steny Hoyer [D, MD-5] today, for example:

House Democratic Whip Steny Hoyer (Md.) said he doesn’t believe Democrats need to raise income taxes on individuals as part of a comprehensive budget proposal, breaking with President Obama and other congressional leaders who have argued for the return of Clinton-era rates for the richest Americans.

“We don’t want to raise taxes, and we don’t have to raise taxes,” Hoyer said on Las Vegas station KSNV’s “Face to Face” program. [link]

That’s the #2 House Democrat, the one whose job it is to whip the caucus in line on the party position, coming out in support of once again extending the Bush tax cuts. And, really, it’s not clear that Hoyer is in fact “breaking” with the rest of Democratic leadership. When the 2001 Bush tax cuts were set to expire, the Democratic leadership brokered a deal with congressional Republicans to extend them. They did that even though the Republicans were in the minority in both chambers of Congress.

In their explanation for why they downgraded the country’s credit rating, Standard and Poors’ base scenario assumes that the Bush tax cuts will be extended once again. Extending these tax cuts is the most significant factor affecting deficits in the coming years, assuming Congress follows the spending restrictions set forth in the debt ceiling bill. They also said that if Congress surprised them and allowed the tax cuts to expire on schedule, that would be enough to justify them upgrading their rating to “stable.”

According to the CBO, extending them means that deficits would still be at 4% of GDP in 2021, while letting them expire would mean deficits would be at 1%.


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