The CBO released their budget estimates for the next ten years today, under current law. It shows that this year’s deficit is estimated at $1.342 trillion dollars, certainly a very high number and almost entirely attributable to the low tax receipts and high automatic stabilizers of the Great Recession. But by 2014, the deficit actually shrinks by well over 60%, to $438 billion dollars, before gradually increasing again. That 2014 deficit is just 2.5% of GDP.
The operative word here is “current law.” Because that assumes a whole host of tax cuts will expire and revert back to their previous state. It also assumes that Congress will not meddle and change those tax laws. If they do what is expected, just for the year 2014, they will double the federal deficit.
For example, the Bush tax cuts expire at the end of the year. If they were to be extended, they would add a crushing burden to the deficit. Sarah Palin’s hand notwithstanding, it’s generally considered that extending all the tax cuts would increase the deficit by $3.1 trillion dollars over the next ten years. An imperfectly derived but somewhat approximate percentage of that for 2014 would be $310 billion. If you leave off the tax cuts for the wealthiest Americans, thought to cost $830 billion over ten years, you still have an increase of $227 billion for 2014.
Then there’s the estate tax, which is not included in those calculations. Republicans have called for the permanent repeal of the estate tax, which would cost around $330 billion over 10 years. The kinder, gentler policy would increase the threshold for the tax and lower the percentage of the marginal tax rate to 35%. That would bring down the loss of revenue to about $262 billion, according to the Treasury Department. 1/10th of that is $26.2 billion.
And, you have to factor in the alternative minimum tax patch. This is perenially done every year to protect the middle class from getting hit with this tax, which was originally designed to capture high-income earners who deduct out their federal income tax. It’s hard to say exactly how much this would cost the government if it were patched in 2014, because it continues to expand. The Tax Policy Center says that 53 million Americans would get hit by the AMT by the end of the decade, at a cost of $300 billion just in 2020. But in 2014, that number is probably significantly lower. Though it’s hard to figure, let’s use $100 billion as a guesstimate.
So, under the most extreme Republican scenario, just on these three tax changes, the federal government would lose $443 billion dollars in 2014. That’s a touch more than the number of the baseline deficit, meaning that changing those tax laws would double the deficit four years from now. Under the less extreme scenario favored by a good number of Democrats, you’re looking at $353.2 billion in revenue loss in 2014.
Those are absolute blasts into the budget deficit, and I’m just looking at 2014. That kind of impact would be felt every single year, at these rates, if not at larger ones.
And everyone who endorses these changes – namely, almost everyone in politics – would tell you that they’re fiscally responsible.
* One caveat to all of this – the CBO’s numbers are based on their projections for economic growth, which actually aren’t all that rosy. But whether you think those growth numbers are too low or too high will color your impressions of whether CBO is lowballing or highballing the deficit, since the state of the economy will have a lot to say about the tax revenue that drives the deficit projections. FWIW, CBO has unemployment still at 9% in 2011, and not getting to a more normal 5% until the period between 2015 and 2020.



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Since when is the Kyl-Lincoln estate tax the kinder, gentler policy? Under that plan the Real Housewives could give $10 million tax-free to their kids who can then proceed to waste their lives too. The Treasury sees nothing.
Didn’t Jefferson say something about forever crushing an aristocracy? Seems some individuals want people in servitude to them. To ensure this they rig the game! Just like the slave-owners….
And after they do extend the Bush tax cuts, increasing the deficit, and then vote to cut social security to combat the deficit, I want to see just one Obama/Democratic defender defend that.
Please.
It would be an entertaining read.
Why aren’t the AMT and the estate tax indexed to inflation? That would be the most sensible way to protect the middle class and would avoid having to extend something every year. Oh, never mind; just look at who is writing the legislation.
Helpful summary of the budgetary effects of different proposals. Thanks, David. Where does the 10 year figure of $830 billion for extending high end tax cuts come from. I thought the number was closer to $700 billion??
that was sarcastic, although I probably didn’t do a good job of making it explicit that I was being sarcastic. I’ve hammered Kyl-Lincoln in the past and think that the best policy would be to do absolutely nothing.
That adds together the raw cost of extending the high-end cuts (about $690B), and the additional debt service on that money. See here: http://www.americanprogress.org/issues/2010/07/let_cuts_expire.html
Thanks.
Easy – they’ll call whoever disagrees with them extremist nutjobs and that they’re letting the perfect be the enemy of the good. The Democrats already passed the massive corporate welfare called “Health Insurance Reform,” so they’d just be keeping to form in killing off SS. I Democrats do deserve special bonus points for running against Republicans claiming the Republicans are trying to kill SS, when it is Obama’s Sovereign Debt Default Commisssion that is going to kill it.
Well, if you want to keep the tax cuts for the middle class, you are going to have to “negotiate” with the repugs b/c as I understand, all the tax cuts expire at year end including those on me and you. Tell us the choices on cloture on this go round. Do we need 60 votes to make the tax on the wealty expire and not the middle class? Same question for the estate tax?
Yeah, but we are going to throw old people into the street to show we are serious about reducing the deficit.
In my opinion, President Theodore Roosevelt really understood the limitations of our fine system of free market system and stated the fix correctly to it by a dual solution of progressive taxes and estate taxes. I am stating his quote verbatim below which is apt for this topic.
When the above concept was applied to its fullest extent by President Eisenhower after the biggest war fought and in addition supported allies and prior adversaries with financial and material support to get back on feet with the top tier paying 90% of their income as taxes on a progressive basis along with Estate Taxes USA had the biggest economic expansion in the history of this country. This is the proof of time for that policy and an undeniable fact.
What did we have in USA after these progressive taxes took effect a society more and better educated more looking like Andy Griffith show and what did progressively increasing Regressive taxes since 1980s with small blip during President Clintons presidency we have right now got the country more looking like Jerry Springer Show with children being under-educated due to cost-cuts to schools and quality of teachers falling sharply due to that.
Before this year wasn’t there a $3m unitary tax credit on first generation inheritance and 50% tax on the balance? If so, sounds like a good place to go for the estate tax anyway.
Obama promised not to raise taxes on the middle class. How will he do that if congress lets all the tax cuts expire. Sure fire way to lose everything. And if you do not let them expire, what will they be? The repugs may have a nuclear option here, no?
I desperatly want to be proven wrong on this,but I think the dems and Obama are going to be forced to negotiate with the repugs on taxes. Otherwise, the tax cuts on the middle class will expire and that would be suicide for Obama and the dems. What happens if the repugs choose not to negotiate, you know all or nothing?
You know I just don’t trust these Democrats anymore than the GOP.
It won’t surprise me,if they do…..remember “compromise” or in the name of “bipartisanship”…..after all you have Mr.bipartisanship himself leading the party.
Note no Democratic leader has forcefully extended the argument,that continuing the Bush Tax-cuts for the wealthy will sink us even deeper….keep note of that folks…..kind a makes me feel that secretly the Dems are hoping the GOP will not back away from their lies….so in the end the Dems can say we just didn’t had enough good “Democratic” votes so we had to extend the Bush tax cuts….Anyway,extending the Bush tax-cuts benefits more than most of those in congress…..they are all rich peoples…when did you ever think they cared about us ,ordinary Americans ? just say’n.
Isn’t that what will happen in the next couple months, anyway? The taxes generally go back to their 2000 rates. At that point, Congress could just pass a new set of tax breaks for the middle class–maybe even keep the Making Work Pay Credit as part of that.
As far as strategy goes, what’s the hurry?
And after all, the Republicans (in 2001) also voted for this “sunset”. The “hike” was something that they supported when they rammed the bill through Congress a few months before 9/11.
Having the deficit go down to 2.5% of GDP in just four years sounds like it’s not much of a problem.
This is a solid case for the use of budget reconciliation and should take only simple majorities for passage.One big problem is the demoRATS have spun their wheels so long their simple majorities seem to be in jeopardy,especially in the House!
Another case of a day late and a dollar short!
People who work hard all their lives should be entitled to keep what they have and pass it along to the next generation. I work to help people set up private foundations…or the gift that keeps on giving as I like to call it. This is far better than turning millions over to the government so they can waste it on welfare programs.
But wait. Isn’t the estate of someone what is left over after they paid taxes all their life? So tax it again?
People talk about income taxes in terms of rich and poor. That is disingenuous. Rich means you have accumulated a lot of wealth. Now, I think we should cut the heck out of spending since most of it is pure waste but if you want to talk taxes and the rich, why wait until they die? Let’s replace the income tax with a true wealth tax. For anyone with $50 million or more, 50% of their total wealth every year. I wonder if Oprah, the Kennedys and the Kerrys would get behind that one?