Extending Bush Tax Cuts For Wealthy Would Be Unsustainable

Making the top levels of the Bush tax cuts for high-income earners permanent would reduce federal revenues by close to $700 billion over the next ten years. And that doesn’t even include interest costs.

That would add to the growing federal deficits and debt that threaten long-term economic security for all of us. But President Obama has proposed a more reasonable course.

He’d allow the 2001 and 2003 tax cuts for couples making over $250,000 (and singles over $200,000) per year to expire on schedule on December 31, 2010.  Tax rates on those income brackets would reset to pre-2001 levels.  Only 2% of tax filers would be impacted by allowing these tax breaks to sunset but it would help put our country on a far more sustainable fiscal path. 

According to the Center on Budget and Policy Priorities (see graph below), two-thirds of the country’s income gains from 2002 to 2007 went to the wealthiest 1 percent of Americans, while income growth was mostly stagnant for the vast majority of Americans. The Bush tax cuts, which are skewed towards high-income earners, have further contributed to the growing gap between the rich and poor over the past decade.

The Congressional Budget Office estimates that our federal debt could reach 90 percent of the gross domestic product by 2020 with annual deficits of more than 5 percent of GDP.  Most economists agree that for sustainable economic growth, annual deficits should not exceed 3 percent of GDP.

Extending the high-income tax cuts would add roughly $700 billion to the country’s debt and deficits in the next decade, and would increase deficits by even larger amounts in subsequent decades.

Given our unsustainable fiscal path and in light of the many pressing priorities that will require significant long-term investment, it would be fiscally irresponsible to extend these tax breaks.