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Trillions in Tax Cuts for the Wealthy Few
While the President's budget freezes or cuts funding for most domestic programs, there is one area in which no expense is spared: making permanent the 2001 and 2003 tax cuts. By the Administration's own estimates, renewing the tax cuts which expire at the end of 2010 would cost $2.1 trillion over the next decade. But even this enormous sum grossly understates the full cost. When the costs of added interest on the national debt and extending relief from the Alternative Minimum Tax (AMT) after 2009 are included, the cost of making the tax cuts permanent rises to more than $4.3 trillion over the next decade.1 Once again, the Administration has failed to include the cost of AMT relief in its budget beyond a one-year patch, in order to hide the true cost of its other tax cuts. Yet the Administration has claimed that it favors AMT relief, and Congress has passed such relief every year since the tax cuts were enacted.
Renewing the Bush tax cuts will provide little or no immediate benefit to the economy,2 but their immense cost will likely harm the economy in the long run, as rising government debt makes investment more costly. The Bush tax cuts already account for just over half of the resurgent deficit spending since 2001,3 and the cost of extending them would be staggering. The annual cost of the tax cuts when they are fully in effect will exceed the combined budgets of the Departments of Education, Homeland Security, Housing and Urban Development, Veterans' Affairs, State, Energy, and the Environmental Protection Agency.4
The benefits of making the 2001 and 2003 tax cuts permanent would go overwhelmingly to the wealthiest Americans. The top one percent of households (currently those with incomes above $450,000) would receive over $1.1 trillion in tax breaks over the next ten years.5 The top one percent would receive 31 percent of the tax benefits. The bottom 80 percent of households would get just one-quarter of the tax benefits, 6 but would bear most of the pain from the cuts in services imposed to help pay for tax breaks for those at the top.
The budget also proposes to expand tax-sheltered savings opportunities that would primarily benefit higher-income individuals through the creation of new retirement savings accounts and employer retirement savings accounts. It does not propose the creation of a more meaningful savings incentive for low- and moderate-income Americans by making the Saver's Credit refundable, to enable those with little or no federal income tax liability to benefit. The budget again proposes health-related tax cuts that would primarily benefit the wealthiest taxpayers, do little if anything to help low-income famlies obtain quality affordable health care, and threaten employer-sponsored health insurance for millions. For more information, see the Health Care section of this report.
The budget would cut funding for taxpayer assistance programs for people who do not have their own tax lawyers and tax accountants. Taxpayer Assistance and Outreach programs are cut by $31 million and funding for the Taxpayer Advocate is cut by $7.7 million.
Footnotes
(1) Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2008 to 2018 (January, 2008).
(2) Congressional Budget Office, Options for Responding to Short-Term Weakness (January, 2008).
(3) Center on Budget and Policy Priorities, "Tax Cuts: Myths and Realities" (November, 2007). This figure applies to budget deficits between 2001 and 2006. Increased military and homeland security spending account for most of the remaining deterioration in the budget.
(4) Aviva Aron-Dine, Center on Budget and Policy Priorities, "Extending the President's Tax Cuts and AMT Relief Would Cost $4.3 Trillion Through 2018" (February 1, 1008). This calculation compares the cost of the tax cuts if fully in effect in 2007 to the 2007 budgets of these agencies.
(5) Aviva Aron-Dine, "Center on Budget and Policy Priorities, "The Skewed Benefits of the Tax Cuts: With the Tax Cuts Extended, Top 1 Percent of Households Would Receive More than $1.1 Trillion in Tax Benefits Over the Next Decade (February 4, 2008).
(6) Ibid.
