Cost of the Tax Cut Deal: $900 Billion

It’s worth pointing out, as Andrew Samwick does, that the deal reached between Obama and the GOP is enormously expensive. As the New York Times puts it simply:

The package would cost about $900 billion over the next two years, to be financed entirely by adding to the national debt, at a time when both parties are professing a desire to begin addressing the nation’s long-term fiscal imbalances.

This is just mindbogglingly irresponsible.

FILED UNDER: Economics and Business, Quick Takes, Taxes, US Politics
Alex Knapp
About Alex Knapp
Alex Knapp is Associate Editor at Forbes for science and games. He was a longtime blogger elsewhere before joining the OTB team in June 2005 and contributed some 700 posts through January 2013. Follow him on Twitter @TheAlexKnapp.

Comments

  1. Alex,

    I understand the point you’re making here but I’ve got to say that this idea about tax cuts “costing” anything infuriates me. This isn’t the governments money to begin with and the idea that it “costs” us anything implies that there’s something wrong with letting people keep what they earn.

  2. Alex Knapp says:

    It costs us because spending didn’t decrease so the government will have to borrow money to make up the deficit. That’s an expenditure — and really it’s more than $900 billion, since we also have to pay interest on the money we borrow.

    Besides, without government, complex economic systems are impossible. It’s not like people earn money in a vacuum. They’re able to earn money because government provides roads, regulates infrastructure, provides protection from violence, provides a system for recognizing property rights, provides currency, provides public education, enforces contracts, etc etc etc.

    Good lord, the Wall Street assholes are “earning” record bonuses thanks to the TARP bailouts. What’s wrong with hiking their taxes?

  3. Alex,

    Government may be necessary but the Leviathan state we have today is not and the reason we are in the economic mess we are in today is due largely to the fact that people have tried to create a government that we cannot afford, not matter how high taxes might be.

  4. Alex Knapp says:

    Doug,

    the reason we are in the economic mess we are in today is due largely to the fact that people have tried to create a government that we cannot afford, not matter how high taxes might be.

    Huh? What evidence do you have to support this contention?

  5. Jason Vines says:

    Alex, if the American federal government limited itself to the functions you specified, it wouldn’t be nearly as expensive as it is.

    Let’s roll back the empire, dismantle the military-industrial complex, refrain from bailing out decrepit and malfeasant corporations, and stop subsidizing wealthy retirees through universal rather than means-tested social security. Then we can discuss tax hikes; otherwise, they’re just theft to nourish a parasitic oligarchy.

  6. Alex,

    Do I really need to recite the entire fiscal history of the United States from 1965 to the present?

    I hope not, because I’ve got to call it a night.

  7. Linda says:

    Government spending is a separate issue altogether. It has nothing to do with extending the current tax rates, other than government can’t confiscate people’s money to pay for idiotic government programs… like TARP and Cash for Clunkers.

    Why do you have such animosity towards the wealthy? I don’t care that Oprah Winfrey has millions and attains any benefits from lower taxes, because she actually employs people with her money. I don’t care that Bill Gates has millions and attains any benefits from lower taxes, because he actually employs people with his money. I don’t care that Steve Jobs… well, you get the picture.

  8. Alex Knapp says:

    Jason,

    Let’s roll back the empire, dismantle the military-industrial complex, refrain from bailing out decrepit and malfeasant corporations, and stop subsidizing wealthy retirees through universal rather than means-tested social security. Then we can discuss tax hikes; otherwise, they’re just theft to nourish a parasitic oligarchy.

    I agree with you, 100%, on all of these cuts, and in an ideal world, that’s definitely something I’d do. Unfortunately, the reality seems to be that that won’t happen, so tax increases are preferable to the alternative of ballooning deficits.

    Doug,

    Do I really need to recite the entire fiscal history of the United States from 1965 to the present?

    If you’re making the claim that the current lackluster economy that was precipitated by the 2008 financial collapse is a result of Fiscal policy, then yes–at least a summary would be nice.

  9. Alex,

    I didn’t say that, I would say that it was a combination of irresponsible fiscal policies and irresponsible monetary policy but, again, that doesn’t have anything to do with my objection to the whole tax cuts “cost us” meme.

  10. anjin-san says:

    > the economic mess we are in today is due largely to the fact that people have tried to create a government that we cannot afford

    Yea, the massive ripoffs by the finance industry when the Bush admin kindly got government out of the way had nothing to do with it…

  11. Tano says:

    “largely to the fact that people have tried to create a government that we cannot afford, not matter how high taxes might be.”

    That is patently ridiculous.
    Federal taxes are now the lowest that they have been in 60 years, as a percentage of GDP. We can certainly afford this government – the problem primarily is that one of our major parties is for taxing and spending at this level, while the other is for borrowing and spending at this level. And borrowing is a popular position to take, so long as you phrase it as “tax cut”.

    So we spend to buy ourselves this size government, because, truth be told, almost everyone does want it. And we rarely if ever agree to pay for it. As Cheney reminded us, Reagan taught us all that deficits don’t matter.

  12. Tano says:

    “Why do you have such animosity towards the wealthy? ”

    You do realize, don’t you Linda, that Steve Jobs and Bill Gates both made huge chunks of their wealth during the nineties, while living under those tax rates that the Dems want to see re instituted. In fact, there has rarely ever been a time in history that has been more conducive to wealth-building than that time, that had those rates in place.

    So the real question is, why do you pretend that those specific rates are somehow antagonistic to the wealthy?

  13. Linda says:

    Tano,

    With the economy the way it is, the question is, why would you want to raise taxes on anyone right now?

    Since paying more in taxes doesn’t seem to be such an issue to you, you can most certainly write a check to the Treasury to help pay down some of this debt you seem to be so concerned about.

  14. Gerry W. says:

    Linda,

    We had the Bush tax cuts since 2001 and 2003 and we see the economy today. Those tax cuts is spent money for the here and now and did nothing for our future. Look at the economy. Look at globalization and 2 billion cheap laborers. Look at double digit unemployment. They took 30% of the manufacturing jobs. With odds like that, the tax cuts are not powerful enough to create jobs. Even the fed with the printing of money to ‘create’ jobs is not working as globalization trumps what we can do. And after all these years of tax cuts there is nothing to show for it. We lost jobs, the middle class will have pressure on wages, the infrastructure was neglected, and we have done nothing for our future with public/private investments. Why not fix our problems instead of failed ideologies.

    http://www.newsweek.com/id/222836/output/print

    http://www.asce.org/reportcard/2009/

  15. Dodd says:

    The failure to rein in spending will cost the government whatever doesn’t get reined in Not raising taxes doesn’t cost the government a dime. It’s not the government’s money.

    Also, I am highly dubious of that $900B in two years figure, unless they’re talking about all tax rates staying the same rather than just the top earners’. Not even Obama was saying anywhere near that when he was arguing against it ($700B over 10 years was the usual figure being bandied about). Since the middle class tax rates were never going to change as a practical matter, the $900B figure is — to borrow your word, Alex — “mindbogglingly” disingenuous. I seem to recall reading in the last couple of days that not raising the top earner tax rates would lower Treasury receipts by $68B a year (a number in line with Obama’s $700B over 10 years figure). I guess saying that the tax deal would “cost” $132B doesn’t have the necessary sizzle for the Gray Lady.

  16. Alex Knapp says:

    Dodd,

    It’s the tax cuts, plus estate tax cuts, plus unemployment extension, plus payroll tax holiday.

  17. Dodd says:

    No it isn’t. Not even firedoglake, which hates this deal, can come up with a number that high. Counting even extension of Obama’s stimulus tax credits and the unemployment benefits extension, they total it up at only 1/3 that figure.

    The Gray Lady is willfully trying to deceive. And you bought it.

  18. Alex Knapp says:

    @Dodd – Read the post again. It doesn’t say what you think it says.

  19. Dodd says:

    It says this deal would “cost” $900B over the next two years. I don’t misunderstand it as just referring to tax cuts for the rich. And, even counting everything in it (and leaving aside the nonsensical implicit assumption that it’s the government’s money, not the taxpayers’), that number is still totally unsupportable.

  20. ratufa says:

    “I understand the point you’re making here but I’ve got to say that this idea about tax cuts “costing” anything infuriates me. This isn’t the governments money to begin with and the idea that it “costs” us anything implies that there’s something wrong with letting people keep what they earn.”

    Saying that cutting taxes, without corresponding spending cuts, lets “people keep what they earn” is literally true, but misleading. It’s like saying that paying by credit card instead of cash lets people keep their money. Sure, the cash you would have spent is still in your wallet after you pay with your credit card and that money belongs to you, not the credit card company. But, of course, there’s a bill to pay, with interest.

    In other words, “to spend is to tax”, and there’s nothing here to cut spending. Just goodies for everyone. Perhaps that can be justified given the state of the economy and the low interest on government debt. Though, I suspect that the reason that both Obama and the Republicans think this is a good deal is because they are playing different games.

  21. Patrick T. McGuire says:

    First of all, there were no tax cuts. Instead, there were no tax increases. And tax cuts don’t “cost” anybody anything. Spending “costs” money. This isn’t semantics, it’s just plain fact.

  22. Gerry W. says:

    Dodd,

    ***It’s not the government’s money.***

    This is where arrogance sets in. I can understand the disdain of wasteful government spending, but on the other hand we need to make government work. The problem with hoarding your own money is that it is not benefiting the economy. Give people their money and half the money is spent are on foreign goods. So it has less effect today than 30 years ago. If you keep your money continually, then what kind of stimulus can we (the government) have if you already have spent the (tax cut) money. We had the tax cuts since 2001 and 2003, so there is no leverage. There was a day you jump start an economy for two or three years with a tax cut. So we lost that leverage. The same with the fed with lower and lower interest rates for years. They are all crying wolf and we are still losing jobs. I say fix the problems instead of relying on ideology, ignorance, and arrogance. We had the tax cuts but we lost the jobs. Look at the reasons and problems and deal with them. The dynamics have changed in this age of globalization. All you are doing is letting 20% to 30% of the population fall off the cliff. And if you don’t like the government then make it work (it has to work to save our country).

  23. Alex Knapp says:

    @Dodd,

    I’m referring to the Firedoglake post.

    @Patrick,

    Perhaps you don’t understand how this works. When the government lacks sufficient revenue to pay for its spending, it doesn’t stop spending. It borrows the money. Which it then pays back at interest. So cutting taxes without cutting spending causes an increase in cost.

  24. john personna says:

    LOL, government spends, someone says what the spending costs, Doug objects because, since it is his money, nothing the government spends ever costs anything.

    It is one thing to use circular semantics, another when your semantics don’t complete the circle.

    (In the English language “spending” and “cost” have a very close meaning.)

  25. Tiny Tim says:

    I get infuriated when many within the GOP/Tea Party, who- while reminding us that the tax dollars are theirs, forget that anyone on unemployment has also paid taxes and for unemployment benefits. And the bulk of working Americans pay into unemployment in for many years before filing to get these benefits, if ever. Sort of like saying you should not file a claim for auto insurance (required in most states) or life insurance if you should be so unfortunate as to have accident or die. It is implied by the conservative side that there is something morally wrong with filing for these prepaid unemployment benefits while seeking employment. (Actively seeking employment is required to receive benefits.) And yet filing and receiving Medicare and Social Security benefits are okay. Also everyone is required to pay in to unemployment but everyone is not unemployed. Where’s all that extra money that has been accumulated? The entire concept of thinking that those tax cut are all ours to begin with begs the argument; if you want all your tax money back, you should not be allowed any of the benefits (like public education), protections (like military, firefighters, cops, and homeland security) or infrastructures (like roads) that tax dollars allow for in this country. Sure we can argue wasteful spending. But getting what you pay for (like unemployment) is not wasteful spending. And yes, many will get more benefits than they paid in. But the same is certainly true with Medicare and Social Security. But then again, many others will never use what they paid in.