In a recent editorial somewhat misleadingly entitled “A Real Debate on Taxes,” The New York Times argues in favor of allowing the 2001 and 2003 tax cuts to expire for Americans of all income levels.
Their argument presents a few fatal flaws. First, a real debate on taxes is also a real debate on the current and projected skyrocketing levels of federal spending. Instead, the Times asserts that “more Americans—and not just the rich—are going to have to pay more taxes” in order to address looming deficits. The Times may prefer that taxes rise broadly, but there’s nothing at all necessary or inevitable about this.
The Times conveniently ignores the fact that it takes two to make a deficit: some combination of a shortage of revenue and an excess of spending. In fact, growing deficits today are clearly a symptom of out-of-control spending, not reduced revenue. Heritage budget expert Brian Riedl writes, “By 2020, spending is projected to be 6.2 percent of GDP above the historical average, while projected 2020 revenues are 0.2 percent of GDP above the historical average. Thus, the entire expanded budget deficit will be caused by rising spending, rather than by falling revenues—even if the 2001 and 2003 tax cuts are extended.”
Moreover, the Tax Policy Center’s William Gale explains that the 2001 and 2003 cuts “are not the main cause of the sizable deficit that exists today.” Rather,
In 2007, well after the tax cuts took effect, the budget deficit stood at 1.2 percent of GDP. By 2009, it had increased to 9.9 percent of the economy. The Bush tax cuts didn’t change between 2007 and 2009, so clearly something else is to blame.
The main culprit was the recession—and the responses it inspired. As the economy shrank, tax revenue plummeted. The cost of the bank bailouts and stimulus packages further added to the deficit.
Once the economy recovers, revenue will return to its historical levels. If Congress were to restrain spending—rather than raise it to 25 percent of GDP as per President Obama’s plans—the deficit would fall to manageable levels and the national debt would stabilize. Indeed, in contrast to President Obama’s budget, which would double the national debt by 2020, the cost of continuing current tax policy is relatively small.
From Washington’s perspective, extending current tax policy may look like a tax “cut,” but to American families paying the same amount in taxes next year as they do today, it is in no way a cut. Rather, allowing the tax cuts to expire will mark a drastic hike in what families pay to the federal government. It’s never a good time to raise taxes, but during a recession is about the worst time possible. Doing so just to permit an explosion in spending makes no sense at all. This is the real debate, but you won’t read about it in The New York Times.