Thursday, February 14, 2013

Nearly 95% of Bush Tax Cuts Made Permanent: More Loopholes Added But Little Debt Reduction

For years, Democrats and some Republicans have argued that a substantial portion of today's mammoth debt of $16.3 trillion should be pinned on the Bush-tax cuts of 2001 and 2003. Yet in January of this year, these same policymakers made 95 percent of these cuts permanent. The proponents of this action contend that it will bring fairness to the tax code and reduce the budget deficit. It fails miserably on both counts.

First, the tax rate hikes on those making more than $400,000 will only reduce the federal debt by less than 8 percent over the next decade. Second, the Obama administration argued that the higher rate on the "rich" would insure they pay their "fair share." White House communications director Dan Pfeiffer reported in a tweet that the tax would "act as a kind of AMT." Let's hope not!

In 1969 the Minimum Tax was passed to be rebranded in 1982 as the Alternative Minimum Tax (AMT). The original goal was to hook 155 high-income households that paid no federal income taxes. Currently more than half of AMT tax collections come from taxpayers making between $150,000 and $200,000 and it is estimated that by 2015 over 50 million Americans will pay the AMT. Unfortunately, millionaires continue to thwart the original intent of the AMT and will likewise sidestep the Obama tax hike with the burden falling on thousandaires some time in the near future.

Furthermore, despite adding tax loopholes in the recently passed tax bill for Hollywood moviemakers, NASCAR track owners and Puerto Rican rum producers, President Obama is now calling for the elimination of certain tax deductions for high-income individuals. Only tax preparers at H&R Block can appreciate the onerous tax code that the administration continues to litter with subsidies and tax favors for preferred groups.
Ernie Goss


Anonymous said...

I believe the government can alter the tax code any time in the future, and even create new benefits. As a Brazilian economist working abroad not in the States, and therefore a neutral guy speaking for myself, the core of this problem is not about taxes but really decades of imbalances that led to this desperate situation, listen that sounds bad administration and not a tax issue, but now the whole thing is done that's part of the past, now again, the core of the problem is who wll and how to pay this massive debt and at the same time maintain economic growth. As I said I am an Economist and not a magician. In the States today people tend to think there will be a magical solution, a potion or a spell for this problem, unfortunately there won't, but decisions have to be made now and have to be made it quick, I mean even quicker than before. But I truly believe the American people have an amazing heck of resilience and although tough times for the American economy lies ahead, its people will endure sacrificies just like many times before, and in this sense I still see this amazing country getting back to growth. I am bullish in America but it will take a good time to heal this wound until there I believe the only way to do that is with tax hikes, for everybody not only for poor or rich, big, mid or small, corporates or individuals, along with tough auterity policies are inevitable and that's exactly the burden the American people will have to carry.

Ricardo C.P.

Ernie Goss said...

Thank you for your comments. I am not sure that the current trajectory and economic policies will move the economy is the right direction. You identified holes---I think we may be digging a bigger economic hole with these policies.