The GOP, the deficit, the economy and the Bush tax cuts: A reality recheck

One of the most irritating things about the never-ending stream of utter nonsense that is the Republican race for the 2012 presidential nomination is the continued avoidance of the fact that the Bush tax cuts have sent the US economy over a cliff.

It's one thing to be an ideologue, another to let your ideology stand in the way of hard facts that explicitly disprove whatever your ideology tells you is the right thing to do. And there's plenty of hard facts to disprove the central premise of Republicanism, that lowering taxes cures any and all social ills.

As far as we can tell, every single one of the potential Republican nominees wants to extend the Bush tax cuts, which were passed in 2001 and 2003, extended in a compromise deal in 2010, and are due to expire next year.

Is there any one of the GOP contenders who would be willing to let the tax levels for high-income individuals revert to their pre-Bush levels? That is, the levels they were at during the Clinton administration, when unemployment stayed low, the economy grew at a startlingly lively rate, and the government ran - gasp - a surplus? If so, they've been pretty quiet about it.

Not a single one of those same nominees is willing to acknowledge the obvious and simple fact that those Bush-era tax cuts are the single biggest contributor to the United States' crippling budget deficit. To do so would be an affront to the cognitive dissonance that is an essential way of life for these people.

So we've poked around for some studies and number-crunching by people who actually know something about these things, and found an excellent set of data, opinions, and charts, already widely distributed on the web some months ago, that need to be resurrected once again. They illustrate the simple and obvious point that everything the GOP hopefuls tell you about taxes, the economy, unemployment and the deficit is a lie.

The info is gathered from the nonpartisan Center on Budget and Policy Priorities, whose experts delve deeply into the nuts and bolts of economic policy at the federal, state and local level. In other words, way deeper than any of the economic and intellectual lightweights currently trying to buy your vote with catchy, meaningless one-liners.

First, these prophetic words from 2010:

Letting President Bush’s tax cuts for families making over $250,000 expire as scheduled at the end of 2010, while temporarily redirecting this money to more efficient ways of boosting the economy while it is weak, would help the nation address two key challenges: short-term economic weakness (with nearly one in ten Americans out of work) and unsustainable long-term deficits.

Over the next year or two, policymakers could channel the savings from letting the tax cuts expire — about $40 billion in 2011 — to uses that have more “bang for the buck” in creating jobs and promoting growth. For example, Congressional Budget Office (CBO) analysis suggests that using those savings for a combination of a job-creation tax credit and continued state fiscal assistance would generate three times as much additional economic activity as using them to extend the high-income tax cuts.

Over the longer term, allowing these high-end tax cuts to expire on schedule would produce substantial deficit-reduction savings. (Policymakers could dedicate the short-term as well as the long-term savings to deficit reduction if they cannot agree on other short-term uses of the funds to boost the economy.)

A short-term extension of the tax cuts for high-income households, which some have suggested, also would be ill-advised. It would have only a small effect on the current, weak economy, while posing a substantial risk that Congress would continue extending the tax cuts and even make them permanent, creating much larger deficits for years to come. This risk is especially high given that the next Congress is likely to include considerably more proponents of making these tax cuts permanent. This is a matter of no small consequence: deficits and debt will be about $1 trillion higher over the next ten years if the high-income tax cuts remain in place.

And these, from the same article:

CBO indicated that extending the tax cuts for high-income households in particular would rate even lower in effectiveness than extending all of the tax cuts. This is because, as CBO explained, “higher-income households … would probably save [rather than spend] a larger fraction of their increase in after-tax income.”An economy in a recession or the early stages of a recovery needs more spending, not more saving.

In short, CBO found extending the tax cuts for high-income households to be the worst of all options under discussion for preserving or creating jobs and boosting economic growth while the economy is weak.

Alan Blinder, a former Federal Reserve Vice Chair and one of the nation’s most eminent economists, recently made this point as well. Writing in the Wall Street Journal, Blinder observed:

Consider three different ways to add a dollar to the budget deficit: increase unemployment benefits by $1, give a $1 tax cut to someone earning $50,000 a year, or give a $1 tax cut to someone earning $5 million a year.

While the immediate impacts on the budget are identical, the near-term spending impacts are not. The unemployed worker struggling to make ends meet will likely spend the entire dollar right away. The $50,000 earner probably will spend the lion's share of it, saving just a bit —that's what most Americans do. But the $5,000,000 earner probably will save most of the new-found dollar.

The impacts on economy-wide demand will therefore be quite different. Paying more in unemployment benefits offers the most spending “bang” for the budgetary “buck.” Extending the Bush tax cuts for the wealthy offers the least.

As a result, Blinder explained, it would be more economically efficient to let the high-income tax cuts expire to and use the proceeds to advance policies that create more jobs and growth in the short term, while devoting the savings to deficit reduction after that.

And finally, the now classic five charts that illustrate why even billionaire New York City mayor Michael Bloomberg is absolutely right when he says "we need Republicans to accept the fact that we have a serious revenue problem" and recommended that the portions of the Bush tax cuts that affect the richest be allowed to expire on schedule.

From the Washington Post:

“All income groups have to be part of the solution,” Bloomberg, who is also the 12th-wealthiest person in the world, said at the bipartisan event on debt reduction. “It’s fair to ask those who earn more to bear more of the burden.”

Now, some charts from the CBPP:

Bush tax cuts heavily tilted toward the top

Bush tax cuts did not spur strong growth

Economic downturn and legacy of Bush policies drive record deficits

Cost of extending tax cuts exclusively for upper-income taxpayers roughly equals social security shortfall

Letting Bush tax cuts expire would halt rise in debt over next decade

In other words, let the stupid tax cuts for people who don't need the help expire, and poof, the runaway deficit goes away without cutting billions of dollars in federal, state and local services to people who are struggling. Seems like a nobrainer. Unfortunately, so do every single one of the GOP candidates, at least as far as fiscal policy in concerned.