The Problem With Extending the Bush Tax Cuts…
By Shaun Kenney | Thursday, November 4th, 2010 | Policy…is a $3 trillion dollar problem. Next year, the new Republican majority in the U.S. House will have to face one heck of a fork in the road.
Will they extend the Bush Tax Cuts and keep $3 trillion dollars in the economy?
Or will they allow them to expire, and use the money to close the federal deficit?
Should the House GOP vote to extend the Bush Tax Cuts, they will have to do one of two things almost immediately: (1) raise the debt ceiling, or (2) threaten a showdown with the Senate Democrats and President Obama over spending.
The last time House Republicans called the bluff of a president and allowed a shutdown of the federal government, it was the GOP who ended up on the worse end of the argument. It effectively ended the “Revolution of ’94″ and allowed for triangulation to create its own narrative… and ultimately re-elected Bill Clinton to a second term.
Politics is the art of the possible. If we extend the tax cuts, do Republican activists have the stomach to fight while their neighbors in Northern Virginia are out of work? When they stop shopping and small businesses no longer benefit from the massive machinery of government bleeding the rest of America dry?
Will the House GOP cut spending? Or will they whip out the very same national credit card we presumably fought to ensure Obama and the Democrats would not rack up?
I know what we’d like to see… but you and I both know what’s coming. And that, my friends, is sad.
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Shaun Kenney is the Chairman of the Fluvanna County Board of Supervisors, former Communications Director for the Republican Party of Virginia, and an active blogger since 2002. Shaun lives in Thomas Jefferson's backyard with his wife, six children, and a modest attempt at a farm in Kents Store, Virginia.
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32 Responses to "The Problem With Extending the Bush Tax Cuts…"
You may be right. But if the tax cuts aren’t extended AND if spending isn’t cut, it will be clear that they just didn’t get the message from Tuesday. And next time we’ll just have to shout a little louder.
Well actually Ward, the public seems evenly divided on that issue. 39% of voters say cutting the deficit should be the highest priority of Congress, but 37% prefer spending increases to create jobs. It is time for your guys to show how cutting the budget will lead to job creation, and how they plan to reduce the deficit while also preserving the Bush era tax cuts. Frankly, after two years of obstruction as a substitute for policy, Boehner/Cantor have some work to do.
Oh absolutely Boehner and Cantor have some work to do. Cantor’s already on the ball with his proposal. You can even read it here. We intend to hold them accountable.
We’ve had two years of stimulus spending to create jobs, and it’s only created government jobs. Lots of them temporary.
But if you don’t see that the clear message from Tuesday was to stop the insanity of runaway spending, then you’re either not listening or too blinded by your own partisanship.
But, thanks for playing.
If we cut the spending will it not hurt our area? We can’t cut spending with out hurting our local military as JFCOM has shown. We asked for cuts and JFCOM is headed out the door. We asked for it and next are the carriers including USS Enterprise which will be retired in two years costing our area 11,000 more jobs. I’m guess our reps will fight for it but with 49 other states trying to save their regions from taking a hit, we’ll not find support in Congress. GOP has to cut to make try to hold the line on the budget or take a beating from the voters. Cuts are coming and our local area has been held relatively harmless but those days are over.
Becareful what you ask for…
Well actually Ward, private sector job growth has already begun; I believe that has been so for a year. It has been the loss of public sector jobs that has depressed local economies. So if your guys will mount an aggressive budget cutting effort, which will clearly reduce jobs, how do you guard against a double dip as the steam goes out of the recovery? And if you don’t let the Bush tax cuts expire on the rich, aren’t you just admitting that you really don’t care one wit about reducing the deficit?
My gut instinct says that the GOP will extend the debt ceiling. Why not? It’s money you don’t see…
To force a fight on spending so early would be a dramatic change. Not sure it’s one that the GOP would eventually win.
Mike touches the point delicately… best solution is to fix the denominator and grow the numerator. That means a balanced budget and either spending cuts or (gulp) a tax hike.
Austerity budgets simply don’t work. Spending cuts would be preferable, but will the American public accept the kind of cuts required? Or worse, will the new GOP leadership accept them? I’m not optimistic.
I don’t care which party is in power in the near future, but if there is no commitment to back the President and the Secretary of Defense in reducing the defense budget, then this whole process of calling for reduced budgets, and of cost cutting, will have been an exercise in futility. Now that MediCare spending has been reduced via the health care bill, we need to look at gradually increasing the retirement age to 70, and combined with these changes in entitlements, we can pay off most of the debt and reach a balanced budget by 2018. If political grandstanding remains the norm, however, none of this will happen.
I find the above discussion hilarious. Christie and McDonnell roughly balanced the budget without raising taxes. I don’t even see the mobs in the streets complaining their brontosaurus pork is too svelte. Even the gangster socialist O’Malley in MD has suddenly had an epiphany about cutting spending. The Federal govt can be balanced without breaking a sweat. Pick a past year when the outlays equaled the current years revenue and use it with a few tweaks. Look back in American history or world history for that matter and see that when the brontosaurus govt is put in the steamroom the economy does fine. It often does so well that care needs to be taken to prevent it from expanding too rapidly.
Mike, according to ADP, the private sector job growth in October was 43,000.
http://www.economicpopulist.org/content/adp-employment-report-october-2010-43000-private-sector-job-gain
And, as noted in the link “Employment gains of this magnitude are not sufficient to lower the unemployment rate.”
The bottom line is that the federal government spends too much money. It’s just that simple. Does that mean that there are never any programs that require additional funding? No, of course not.
But there are going to have to be some difficult choices made. And it’s not just in the area of Defense.
William Bailey, as I noted above, there are lots of other places to cut spending without cutting Defense.
Cutting Defense spending is just nibbling around at the edges. Reduce the entire Defense budget 25% and all you have done is to rearrange the deck chairs on the Titanic.
As I have posted on other threads, Defense spending is less than 4% of GDP and declining. Entitlement programs, on the other hand, are over 15% of GDP and increasing at an annual rate of over three times the average growth of GDP.
The outlaw Willie Sutton was once asked why he robbed banks. He famously responded, “because that is where the money is.”
If you want to balance the Federal budget and reduce deficits, then you are going to have to go where the money is.
If you call McDonnell’s failure to pay 620 million into VRS this year part of a balanced budget, you really need to go back to school.
And the 4% GDP for defense spending is still an awful lot of spending. Do you really believe the GOP will cut spending on Social Security, Medicare or other senior citizen retirement entitlement programs and risk losing all those votes? Not a chance…
You’ll likely attack unemployed workers, single parents and the mentally ill who are not likely voters… Sorry but there is a pattern.
This isn’t the first time the GOP has been around the block. This time, I’m watching and waiting to see how much is just talk and how much is just BS. LOL
Mike so when the Democrats were in the minority and they did not allow things to come to the floor in the Senate and just opposing Pres. Bush and the GOP in Congress but not putting forward any ideas were they obstructionists or were they defending principles and morals?
William Bailey,
“Do you really believe the GOP will cut spending on Social Security, Medicare or other senior citizen retirement entitlement programs and risk losing all those votes? Not a chance…”
No, I don’t believe that either party can do that alone. It is going to take a monumental bi-partisan effort to do so. Otherwise, we are doomed.
Do the math. You can eliminate ALL discretionary spending, Defense included, and the entitlements spending will still bankrupt our country before 2050 at the current rate of growth.
Otherwise, what is your solution, other than to throw rocks at the other political party?
FYI: I’ll be dead by 2050… LOL
I do not believe anyone will touch the entitlement programs and I get tired of hearing how we need the cut them but nobody has the balls to do it.
Politics was never intended to be a career. Have some balls do what is needed to be done and take the beating for doing your job. My motto: “Never fear the voters, do what is right and what is in the best interest of 80% of Americans. Leave a legacy of accomplishment even if you only serve one term.” I said the same thing to Nye but he choose to play politics and look out for himself. He still lost…
Losing isn’t a bad thing IF you accomplished meaningful things while in office.
JMO: I don’t care if it is the GOP or the DEMS but somebody has to put America first… I’m not holding my breath for you guys to get this one right either. Sorry if you don’t like it.
Entitlements and wasteful spending in general are long overdue to expire. The Fair Tax is well worth reading for anyone who considers themself a fiscal conservative.
Bailey,
I’m glad that you are laughing out loud because your life expectancy is going to grow shorter exponentially as economic collapse looms in the United States. You will most certainly not live until 2050, even if you are only 18 now. Food riots, anti-government insurrection, and anarchy will precede the final bankruptcy of our economy and it will be characterized by social disintegration not seen in this country since the Civil War, if then. Will the politicians see it coming and avert disaster? Sure, just like they did when the housing bubble was ready to bust in 2007.
Do you suppose that when the very fabric of society is torn anyone will give a shit about which party saved the entitlements programs?
When discussing entitlements, you need to distinguish between Social Security and Medicare. Since they are both programs for the elderly, people tend to think of them together, but they are really separate.
Social Security is actually in pretty good shape — the system will be solvent until 2037 at which time, even if nothing was done, it would still be able to pay out 76% of promised benefits. Fortunately, minor changes now will ensure the program’s solvency well into the future (Report of the Senate Committee on Aging, May 13, 2010).
Medicare is a different animal. A larger and larger portion of the programs costs is covered by contributions from general government revenue, and something needs to be done about the costs. I’m no expert, but I don’t understand how this problem can be addressed in the absence of addressing the cost and manner of accessing health care in the U.S.
HisRoc: You need help… Sorry but I’m not buying your doomsday dreams.
Shaun,
Where di the $3 trillion figure come from? Is that a ten-year figure?
As for entitlements, reform may be easier than people think. I and may my age or younger (I’m 38) don’t expect Social Security anyway (I have repeatedly promised that I will eat my first SS check – I’m that confident it’s never coming).
Granted, as far as I know, only three politicians were willing to talk about serious entitlemnt reform (Paul Ryan, Boehner, and Rubio). that said, none of them suffered any consequences for it (Ryan was easily re-elected, Boehner led his caucus to its best result since 1946, and Rubio was elected Senator).
Clearly, entitlements and Defense is where the big money is. Action quickly to extend the retirement age gradually to 70, raising slightly the amounts on which the tax is applicable, requiring state and local employees not now in SS to join, all would work to extend the fiscal stability for 50-75 years. Defense is another big ticket item, and we must convert our defense assets to address the threat, not build more conventional forces against nation states for which the military industrial complex continues to lobby. By 2018, DoD should be 2% of GDP, while today it is at 3.6% or so. Frankly, that can and should be done, and we would be safer still. Unneeded new weapons systems? They can wait.
Hmmm, cut a deal on the tax cuts — say they don’t get extended for everyone making more than $500,000…as HisRoc said it will take some bi-partisan pain to address entitlements..this doesn’t seem to be the climate in which that will happen…I don’t see us addressing other major concerns either….if we don’t rebuild our manufacturing base this will be third world country within a generation. But nobody is talking about that.
Mike is right about raising the retirement age. Also why not create a real trust fund for social security. The trustees could be appointed like VRS trustees, and should develop an asset allocation strategy for investing the surplus (once again like a state pension fund) instead of simply “lending” it to the government. THey could sell some of social security’s Treasuries and invest in a mix of corporate bonds, blue chip stocks, some government securities, etc. All new social security tax money would immediately be remitted from the IRS to the trust.
theoritically they could do the same for medicare, separate trust, could be managed by same or different trustees, and raise the eligibility age.
We need to remember that MediCare costs have been significantly reduced in the Health care bill, and panels have been established to review procedures for long term disease. Further, an idea that had been supported by both sides, that is, tort reform, could be compromised in the established of “medical courts’ that would adjudicate these claims with medical professionals and lawyers trained specifically for this purpose. Frankly, if both sides stop throwing hand grenades, it would be amazing what could be accomplished.
@SE VA MWC Alum
Raising the retirement age should be a last resort. I understand the argument that increased life expectancy justifies delaying the date that retirement starts, but for many people, particularly blue collar workers, the issue is not how long they will ultimately live, but their ability to continue working past a certain age given the physical demand of their jobs.
As for what to do with the trust fund surplus, I think it is worth looking at your ideas. The question, really, would be whether a significantly better return could be earned while still keeping risk within acceptable limits, whatever those acceptable risks are.
aznew-thanks for the reply. I appreciate your risk concerns and thats part of what asset allocation is about-a financial advisor would recommend a forty year old client have a higher percentage of their protfolio in higher risk investments then someone who is 55. They have more time to recover from a downturn etc. Social Security (like state pension funds) have people who are drawing now, will be drawing soon, and will be drawing eventually but not for significant years to come. Asset Allocation would be tailored based on that, and would be rebalanced annually or more frequently. Every few years the allocation strategy would be updated based on demographic trends, financial trends, etc.
As far as raising the retirement age it will become a necessity eventually. The better we can do with the investment strategy, the less we’ll have to raise the age.
Actually, if the parties could actually work together and compromise, and if entitlements and DoD were on the table, it is quite possible to conceive that cuts could be made that would allow the Bush tax cuts to remain in effect. But that involves other actions, like reducing agricultural and corporate subsidies, cutting the federal work force by 5%, raising the federal gas tax to $1.20/gallon, like Europe, and fixing our transportation infrastructure with the proceeds so our economy can get moving again. Frankly, without politics and demonization of the other guy, this could get done.
On 01/01/2011 federal taxes will either stay the same or they will go up. For democratic politicians to raise taxes on almost every citizen in the United States would be a brilliant way to start the 2012 campaign.
I thought you Republicans were concerned about the deficit?
What Republicans and Democrats are arguing about is either a 3 Trillion (Democratic) or 4 Trillion (Republican) dollar increase in the deficit over the next 10 years by extending the Dubyah tax cuts.
We can cut spending to pay for these tax cuts? OK, include the spending cuts in the bills authorizing the tax cuts. Better yet, allow the taxes to go up and do the spending cuts anyway. That might be REAL deficit reduction.
Everybody wants everything and nobody wants to pay for it.
Littel David: Yeah, you’ve cracked the code.
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