I looked at the Treasury Department’s “green book” on the Administration’s revenue proposals only a few days ago, curious to see how the Bush (soon-to-be Obama) tax cuts would be described, considering that they comprise the single most costly policy in President Obama’s proposed budget (about $2 trillion over ten years according to CBO). Seems like a pretty significant “revenue proposal” to describe, right? The Treasury green book is 131 pages long, with each tax proposal described fairly thoroughly, over the course of 1 to a few pages each, in terms of current-law treatment, reason for change, and the specifics on the President’s proposal. Yet the extension of the 2001 and 2003 tax cuts is described in exactly two places–first, as a footnote in the table of contents (note, through the emphasis added, how hiding behind the “baseline issue” disguises what is actually a “primary policy proposal” of the Obama Administration)…
The [Obama] Administration’s primary policy proposals reflect changes from a tax baseline that modifies current law by “patching” the alternative minimum tax, freezing the estate tax, and making permanent a number of the [Bush] tax cuts enacted in 2001 and 2003. The baseline changes to current law are described in the Appendix.
…and then, turning to that Appendix (very last paragraph on page 125, the last text page of the document):
Continue the 2001 and 2003 tax cuts. Most of the tax reductions enacted in 2001 and 2003 expire on December 31, 2010. The Administration’s baseline projection of current policy continues all of these expiring provisions except for repeal of estate and generation-skipping transfer taxes. Estate and gift taxes are assumed to be extended at parameters in effect for calendar year 2009 (a top rate of 45 percent and an exemption amount of $3.5 million).
That’s it. That’s the explanation of $2 trillion worth of tax cuts as described in Treasury’s “General Explanations of the Administration’s Fiscal Year 2010 Revenue Proposals.”
Is it that the Administration doesn’t have much to say about those Bush/now Obama tax cuts? No, that can’t be it. President Obama’s budget director, Peter Orszag, had a lot to say about the merits (not) of making the Bush tax cuts permanent, back in 2004 (with then-colleague Bill Gale). Among their conclusions (summarized here):
Studies from researchers in academia, the Federal Reserve, the Congressional Budget Office (CBO), and the Joint Committee on Taxation (JCT), as well as our own research, indicate that making the tax cuts permanent could increase the size of the economy slightly for a temporary period but would reduce the size of the economy in the longterm.
Making the tax cuts permanent is likely to reduce, not increase, the size of the economy in the longterm.Making the tax cuts permanent would not reduce uncertainty. Making the tax cuts permanent would raise the underlying fiscal gap — the difference between projected revenue and spending — and hence raise uncertainty about how the gap will eventually be closed. Also, making the tax cuts permanent would likely harm short-term economic activity.
By the standards applied to recent tax cuts, making the tax cuts permanent is not affordable. Despite projections of large and growing surpluses at the time, even the 2001 tax cuts were made temporary, due in part to concerns that they would not ultimately be affordable. Since then, current and projected future budgets deficits have grown dramatically.
And more recently (April 2007), Austan Goolsbee, now a member of the President’s Council of Economic Advisers, wrote that “deficits still matter” and that:
[P]resident [Bush], by requesting hundreds of billions of dollars in further tax cuts, has painted himself into such a tight corner that he cannot produce a fiscally responsible budget without leaning heavily on such dubious assumptions [such as a growing alternative minimum tax, low growth in federal spending, and the continued "raiding" of the Social Security trust fund]…One of the stated goals of the big tax cuts [President Bush] pushed through a compliant GOP Congress–including dividend tax cuts, capital gains tax cuts, estate tax cuts, and top-bracket income tax cuts–was to increase incentives for high-income people to save. On the most practical level imaginable, this policy–call it Supply Side 101–has failed. The savings of high-income people have not increased dramatically, certainly not enough to offset the plunge in the national savings rate that the big Bush deficits represent (because a nation’s savings rate combines personal, corporate, and government savings).
Yes, economic circumstances have changed, and the current case for short-term deficit spending is as good as it ever gets. But the case for longer-term deficit spending in the form of permanent, deficit-financed tax cuts (an extension that wouldn’t take effect until after the recession has ended), doesn’t seem to be any better now than it was back in 2004 or 2007–and perhaps the case is even weaker now. It seems this at least deserves some explanation in the green book of “general explanations,” doesn’t it? Or some explanation, somewhere, from the Obama Administration, now that those tax cuts are such a huge part of President Obama’s budget?
Obviously, I still don’t get it. Why all this Obama love all of a sudden for the same old Bush tax cuts?
--Diane Lim Rogers (cross-posted at economistmom.com)