The High Price of Extending the Bush Tax Cuts Let the political games begin.

Before the GOP took control of the House of Representatives and eroded the Democrats power in the Senate Tuesday, President Obama had steadfastly refused to consider extending the Bush tax cuts -- which are due to expire at the end of the year -- for individuals making $200,000 a year and couples who earn $250,000. Now, not surprisingly, he says he's willing to compromise.

While still arguing that making the cuts permanent is a bad idea, Obama is "willing to listen to both sides," media reports quote Press Secretary Robert Gibbs as saying. Obama already backs making the cuts permanent for the middle class and the poor, points he made repeatedly in the recent midterm campaigns, but this marks the the first time that Obama has been willing to entertain a compromise on the issue with regards to the wealthy, underscoring the magnitude of the defeat Democrats suffered at the polls.

"How that negotiation works itself out, I think it's too early to say," ABC News quoted Obama as saying Wednesday. "But, you know, this is going to be one of my top priorities. And my hope is, is that, given we all have an interest in growing the economy and encouraging job growth, that we're not going to play brinksmanship, but instead we're going to act responsibly."

The Numbers Behind the Politics

Republican candidates running for Congress pledged to maintain all the tax cuts, arguing that now would be the worst possible time to raise taxes. Presumptive House Speaker John Boehner (R-Ohio, pictured above) responded to Obama's overture by reiterating his party's stance that the tax cuts should be made permanent for everyone. A likely outcome may be the extension of the tax cuts for everyone for another two years, says Chris Edwards, director of tax policy at the libertarian Cato Institute.

"That's the way they seem to do all tax bills these days," he says in an interview. "The Republicans are in no mood to compromise. The economy is still in a recession or at least growing slowly."

The Bush tax cuts, which were passed in 2001 and 2003, lowered taxes across the board on income, dividends and capital gains, and eventually eliminated the estate tax. They lowered the tax burdens on married couples, the working poor and parents, and increased tax credits for retirement savings and education. But at some point, the deficits caused by those tax cuts will have to be repaid. According to the liberal Center on Budget and Policy Priorities, Bush's tax cuts accounted for $1.7 trillion in extra deficits in 2001 through 2008, and will add another $3.4 trillion to the national debt in the 2009 to 2019 period.

Dollar for Dollar, a Poor Use of the Money

Fiscal conservatives say the consequences of not extending the cuts would be catastrophic. According to the conservative Tax Foundation, the Bush tax cuts have been worth about $2,200 in tax savings each year for the median family of four. Many small business owners would pay more taxes under the Obama plan, Edwards says.

Critics respond that extending the tax cuts will not do as much to jump-start the economy as critics say.

"According to the Congressional Budget Office and other authorities, extending all of the Bush tax cuts would have a small bang for the buck, the equivalent of a 10- to 40-cent increase in GDP for every dollar spent," writes Brookings Senior Fellow William Gale in his white paper, Five Myths About the Bush Tax Cuts. "The government could more effectively stimulate the economy by letting the high-income tax cuts expire and using the money for aid to the states, extensions of unemployment insurance benefits and tax credits favoring job creation. Dollar for dollar, each of these measures would have about three times the impact on GDP as continuing the Bush tax cuts."

The people, though, want tax cuts, and apparently, tax cuts are what they are going to get.

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Why does everylone refer to the current debate over taxes as "tax cuts"? We are talking about the "tax rate", not the amount of the tax. When President Reagan cut the tax rate, he doubled the amount of taxes going into the treasury. Don't have figures for the "Bush tax cuts", but I'll bet very nearly the same thing happened. Had the party in control of congress cut spending, as they promised, the country would have had a large surplus. I would be really inerested in what proof there is that tax rate cuts do not produce jobs. History has demonstrated just the reverse.

December 09 2010 at 3:23 PM Report abuse rate up rate down Reply

I suggest everyone who has not done so read "Economics in One Lesson" by Henry Hazlitt Most people talk about economic issues as though they are experts- the book I suggest is elementary, and yet most people do not understand it- no offence intended to anyone

December 09 2010 at 2:19 PM Report abuse rate up rate down Reply

Watch closely at the Republican loyalty. You'll see who they stand for.

December 02 2010 at 11:22 PM Report abuse -2 rate up rate down Reply

When will we stop electing jerks like this to office? Everyone needs to stop being political and just be Americans. Let's help the middle class, the wealthy do not miss housepayments and have good health insurance.

December 02 2010 at 3:03 PM Report abuse -1 rate up rate down Reply

the tax relief that all americans have been enjoying since 2001 is the same thing we feel when we buy something we can't afford on credit, great at first, but then the bill comes and we say why did we do that foolish foolish thing. extending the tax relief is down right idiotic, we have to pay the bill, aka the debt, it has to be brought under control. Bush's suspension of Gramm-Ruddman was the most cowardly way to appiese the constituency in the history of the country. we would not be facing the hardships we now endure as a nation had we all just did the right thing and paid our way. teapartiers may be on to something if they realize that we must first raise enough revenue to pay off the debt before you slash programs that will inevitably lead to even greater unemployment and even more polarization of our great country

November 30 2010 at 5:28 PM Report abuse rate up rate down Reply

Hey there, ha6ai. Can you please explain to me why the economy is not bounding along, growing, growing, growing, since the Bush Tax Cuts have been in effect for so many years? In fact, how many jobs did the economy produce after the Bush Tax Cuts? With all that money in the hands of corporations and the wealthy as a result of the Bush Tax Cuts, why did the economy fall over a cliff in 2008? Shouldn't it just have kept growing with all those new jobs the Bush Tax Cuts were producing? Since the Bush Tax Cuts, which put new money in the hands of corporations and the wealthy, did not produce sufficient jobs to keep the economy growing why is it logical to say that extending the Bush Tax Cuts for corporations and the wealthy, which does not put any new money into their hands and just lets them keep on keeping what they have been keeping already for so many years, will suddenly inspire these corporations and the wealthy to suddenly create huge numbers of new jobs? In the words of Mr. Spock, that is not logical.

November 11 2010 at 4:30 PM Report abuse +2 rate up rate down Reply

"But at some point, the deficits caused by those tax cuts will have to be repaid." Wow - someone needs to mention that if you SPEND TOO MUCH, you will have a deficit regardless of how much you tax. That's the simple thing that libs never understand. Stealing money from productive sectors to give to non-productive sectors is a recipe for disaster - period. You cannot 'sugar coat' that. Libs - stop spending! Stop trying to dictate how many calories I consume, what light bulbs I buy, how much water I can use to flush my toilet, whether or not my kid gets a toy at a restaurant! Next liberal target: a federal ban on Crayons at restaurants because the kids may want to go back!

November 10 2010 at 1:03 PM Report abuse -3 rate up rate down Reply
3 replies to jerhoad's comment

Get off it tax cuts for the rich.

November 08 2010 at 11:37 PM Report abuse rate up rate down Reply
Darrell & Donna

The very rich and big business do not pay tax; they all have crooked tax lawyers;;change the tax rules to a flat tax and everyone will pay tax; the unwmployed pay the stupid tax by way of lottery;;

November 07 2010 at 8:55 AM Report abuse +2 rate up rate down Reply

we need the tax cuts to expire except for the middle and low income anything 250000 and up need to stay along with stopping the tax breaks on all these big businesses their is only one reason that any of our so called reps would be against it and thats because it will effect them and their backers which once again shows they are really not the voice of the people but out for themselves until we can get a private group to go in and clean up the wasteful spending and hold those most responsible for their actions they will continue to try and pull the wool over our eyes and continue to make excuses for their actions

November 07 2010 at 8:09 AM Report abuse -1 rate up rate down Reply