I recently read a commentary, “Don’t Repeal Tax Cuts for the ‘Rich,’ Cut the Spending Stupid” by Scott Hodge and J. Scott Moody from the Tax Foundation. They stated that the cause of today’s deficits is not a lack of tax revenue but spending. To prove their case, they presented figures to show that even if they repealed all of President George W. Bush’s tax cuts, it would only raise one-third of the money to erase the 2004 deficit.
While I have no reason to doubt their figures, their commentary was very misleading. They mislead by only putting those figures in the perspective of the large 2004 budget deficit. The reality is that the deficits will be a long-term problem and to honestly evaluate the tax cuts you need to look at the long-term impact.
They argued that even if all the tax cuts were repealed, it would only reduce the $477 billion 2004 deficit by $164 billion; therefore, it is a spending problem. We do need to reduce spending, but even if we eliminated the entire $416 billion nondefense discretionary budget, we would still have a $61 billion deficit. That would eliminate all discretionary spending for education, transportation, health, veterans, justice and all other government functions.
While the elimination of the tax cuts would only eliminate about one-third of the deficit this year, there is a larger impact in future years. I would not propose the elimination of all the tax cuts, but just letting the tax cuts expire on schedule would reduce the $1.11 trillion 2011-14 deficit by $948 billion.
If they just repealed the high-income tax cuts and modified the estate tax, it would save about $581 billion of the $1.36 trillion deficit for the years 2010-14. This would eliminate about 43 percent of the deficit and make spending cuts more viable to balance the budget.
The Congressional Budget Office’s estimate of the president’s budget, which includes extending the expiring tax cuts, shows the average annual deficit of $273 billion per year over the next 10 years. Those deficits are artificially reduced by the surpluses in Social Security and other programs that are spent rather than set aside. The gross federal debt will increase by an average of about $593 billion per year to about $13.4 trillion over the next 10 years.
For those who do not think deficits matter, the annual gross interest on the federal debt will exceed $500 billion by 2008 and approach $700 billion by 2014. That is a lot of spending that can’t be cut and doesn’t pay for any goods or services for the public. That money also won’t help pay for Social Security benefits when the baby boomers start retiring at the end of this decade. We are just passing our problems onto the next generation.
The Concord Coalition and three other respected organizations have issued a joint statement calling for the reinstatement of the pay-as-you-go rule that helped to balance the budget in the 1990s. PAYGO simply requires that anyone proposing new tax cuts or entitlement expansions come up with either a way of paying for them without enlarging the deficit or 60 votes in the Senate to bypass the rule.
While this would not automatically solve our country’s deficit problem, it will at least make it harder for our politicians to try to win votes by promising tax cuts or spending increases without having to explain how they will pay for them. If Hodge and Moody want to save all the expiring tax cuts, they should propose the specific spending cuts to pay for them.
Douglas Stene is the 2nd congressional district chairman of the Independence Party of Minnesota. He welcomes comments at [email protected]