Tax Justice Digest stories about Bush Tax Cuts

McCain's Transformation Complete: Tax Cuts for the Rich, Even if We Cannot Pay for Them

April 25, 2008 3:00 PM | Permalink

Last week Senator John McCain finally completed a process that has been underway for some time now. McCain has worked his way back into his party's good graces by coming out in support of running massive budget deficits to extend the Bush tax breaks and give new tax breaks to business.

It's difficult to remember now, but Senator McCain had said back in 2000, "There’s one big difference between me and the others -- I won’t take every last dime of the surplus and spend it on tax cuts that mostly benefit the wealthy." He also said of the tax plan George W. Bush proposed while running for president in 2000, "Sixty percent of the benefits from his tax cuts go to the wealthiest 10% of Americans -- and that’s not the kind of tax relief that Americans need."

The New John McCain

Let's compare this to the new John McCain, who fleshed out his latest ideas a bit more during a tax day speech in Pittsburgh.

McCain said he would extend the Bush tax cuts, even though over half of the benefits would go to the richest one percent and the cost would be $5 trillion over a decade. He would cut the corporate tax rate down from 35 percent to 25 percent, even though measured as a percentage of GDP, U.S. corporate taxes are among the lowest of any developed country. He would double the personal income tax exemption for dependents to $7,000, which would do the most for those families in higher income tax rates and nothing for low-income people who pay payroll taxes but who do not have taxable income (meaning a family of four with income of less than $25,000). He would abolish the Alternative Minimum Tax, even though about 9 tenths of it is paid by people with incomes over $100,000.

He would enact first-year deduction or "expensing" of "equipment and technology investments, which, along with a lower corporate tax rate, will create new opportunities for tax sheltering by the wealthy. He would ban internet and cell phone taxes permanently because he seems to believe that new technologies need to be granted a waiver from taxes that lasts forever. (If only Thomas Edison had thought to lobby for laws shielding his inventions from taxes.) He would make permanent the research and development credit because he believes innovation comes from the private sector, except not really, because apparently he also believes that no one will invent anything unless we give them a subsidy through the tax code.

And, most tantalizingly, he would offer a simplified alternative income tax that people can choose, at their option, to file. It's optional, presumably because everyone claims they want a simpler tax form but no one can agree on actually giving up the various deductions and credits that make filing ones' taxes complicated. Rather than simplifying tax filing, this will probably lead some people to calculate their tax liability under two different systems to determine which will result in lower taxes.

Massive Cuts in Public Services Would Be Necessary to Pay for McCain's Tax Plan

The Tax Policy Center has calculated that McCain's plans would cost $553 billion in 2012 alone. That's not even including the interest payments on the additional debt that will result, but let's put that aside for a second. McCain claims he can avoid increasing the national debt, at least to a degree, by cutting spending. But the cost of his plan in 2012 is about 17 percent of all projected federal spending that year according to estimates from the OMB (on page 134 for anyone interested). That's a whole lot of spending to cut. Looked at another way, it's more than all the non-defense discretionary spending that year and about equal to discretionary spending on defense.

During his Pittsburgh speech, McCain said he could get $100 billion in "savings from earmark, program review, and other budget reforms" but was not any more specific. The Senator's oft-mentioned earmarks are said to account for only around $18 billion at the most.

McCain has also said that he will obtain $30 billion in revenue by closing corporate tax loopholes. But his corporate tax cut alone is estimated to cost $143 in 2012.

Actually, You Should Just Bill My Grandkids

Then finally, on Sunday, McCain said on ABC's "This Week" that his tax cuts would take priority over balancing the budget.

To get a sense of what a huge shift this is for McCain, remember that during presidential debates he tried to explain away his opposition to President Bush's tax cuts in 2001 and 2003 by claiming that he thought cuts in federal spending should have accompanied those tax cuts to ensure that the nation's fiscal health would not deteriorate.

Of course, what he said back in 2000 also touched on the fact that the benefits of the Bush tax cuts would go mostly to the rich, but the new McCain is apparently unwilling to remind anyone about this.

On "This Week," George Stephanopoulos asked McCain, "If Congress does not give you the spending cuts you say you can get, will you hold off on signing the tax cuts?"

McCain replied, "Uh, no, of course not, because we don't want to increase people's taxes during a recession..."

It's worth pointing out that none of the candidates are actually talking about raising taxes (with the possible exception of the capital gains tax). Allowing parts of the tax cuts to expire exactly as the Republican House, Republican Senate and Republican White House wrote them to expire can hardly be called a tax increase. Further, it would be interesting to know how McCain might explain the prosperity that followed Clinton's tax increase or the economic doldrums that have followed George W. Bush's tax cuts.

President Bush Has Made Tax Day Easier for the Rich - at the Expense of Everyone Else

April 18, 2008 2:58 PM | Permalink

A report released this week from Citizens for Tax Justice explains how "tax day" has changed under President George W. Bush. The answer for most Americans is: very little. Despite claims made by the President and his supporters, the tax breaks enacted after 2000 provide little benefit for the middle-class. However, for the richest one percent of American families, tax day is considerably easier. Once the President's tax cuts are fully phased in, the majority of the benefits will flow to this small group of lucky families.

What has changed for most Americans is the very real threat posed by the increased national debt resulting from these tax cuts. The national debt must eventually be paid off with tax increases or cuts in public services that Americans -- particularly the middle-class -- rely on.

The report explains that:

The tax cuts received by the typical American are nowhere near as large as the President and his supporters imply, and are in fact too small to make any difference in the life of a typical American family.
When the Bush tax cuts are fully phased in, the majority of the benefits will go to the richest one percent.
If the Bush tax cuts are made permanent, as the President proposes, the cost will be $5 trillion over the 2011-2020 period. To put that in context, the federal government collected $2.6 trillion in revenue last year.
The Bush tax cuts received by the richest one percent in 2008 will be more than the funding received by the Department of Education, almost twice as much as the funds received by the Department of Homeland Security and over ten times as much as received by the Environmental Protection Agency.

Charlie Gibson Repeats Misinformation at Democratic Presidential Debate

April 18, 2008 2:31 PM | Permalink

ABC news anchor Charlie Gibson perpetuated a myth about taxes at the Democratic presidential debate on Wednesday night. Gibson said of the capital gains tax that “in each instance, when the rate dropped, revenues from the tax increased. The government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.” He asked Senator Obama, who has signaled that he would raise the capital gains tax from its current level of 15 percent to 28 percent, why he would bother doing this if it would actually reduce revenues.

There is just one problem. What Charlie Gibson said is not true. Revenues from capital gains do not rise when the tax is cut. They rise when the economy is booming and they collapse when the economy tanks. In fact, revenue from capital gains taxes is currently well below the peak it reached during the Clinton era — when taxes were higher.

A small group of ideologues associated with “supply-side economics” believes that tax cuts can actually increase revenues. While this notion is rejected by most mainstream economists and sounds ludicrous to the average person, members of the media and Congress seem unusually susceptible to being hoodwinked into believing it. Their general idea is that if we lower capital gains taxes, there will be more capital gains realizations (meaning more people sell their property that has gone up in value) because the tax on that profit has been cut, and this will lead to revenue increasing overall.

Even if there are more realizations as a result of a capital gains tax cut, the resulting revenue will be nowhere near enough to make the tax cut budget-neutral, much less revenue-enhancing.

The nearby chart shows that the ups and downs in revenue collected by the capital gains tax seem to have more to do with what’s happening in the broader economy than with tax policy. In the early and mid-1990s, when the top capital gains tax rate was 28 percent, the revenues collected by the tax shot through the roof. They continued to climb after the rate was lowered to 20 percent in 1997, but this looks more like the continuation of a preexisting trend linked to economic prosperity rather than a response to the change in the rate. Then in 2001 and 2002 the revenues collected by this tax fell precipitously. This was not following any change in tax policy at all, but clearly linked to the bursting of the dot.com bubble and its ramifications on the stock market.

Capital gains tax revenue did increase after 2003, when the rate was cut again to 15 percent, but we would expect the revenue to rise from the low point of the recession, regardless of what changes were made to the tax code. More importantly, the revenue obviously has not reached the high level of the Clinton years when the rate was higher. Measured as a percentage of GDP, the capital gains tax will probably collect only half as much revenue this year as it did in 2000, when the rate was higher.

Can support for the supply-siders' argument be found if one looks further back in time? No. Charlie Gibson seems to think that capital gains tax revenue fell when the rate was raised as part of the 1986 Tax Reform Act that was signed by President Reagan. The reality is that capital gains realizations surged in anticipation of the rate increase (which took effect in 1987). In other words, an increase in the rate actually increased revenues, albeit temporarily. After that, with fewer gains to realize, realizations predictably declined, and eventually returned to their normal level -- until the Clinton adminstration, when the stock market went up so much that realizations boomed.

When Gibson pressed Senator Obama a second time, insisting that cutting the capital gains tax rate would raise revenue, Obama replied, “Well, that might happen or it might not. It depends on what's happening on Wall Street and how business is going.” Obama also brought up the issue of fairness in the tax code, and the fact that wealthy people with capital gains can pay less in taxes than middle-class Americans, which is an unacceptable feature of our system.

Senator Clinton, however, stated, “I wouldn't raise [the capital gains tax rate] above the 20 percent if I raised it at all. I would not raise it above what it was during the Clinton administration.” This is an unfortunate response. The rate was higher than 20 percent during most of the Clinton administration and the economy thrived and revenues poured in. And, since the revenue “baseline” used by Congress already assumes that the rate will revert to 20 percent when the Bush tax cuts expire at the end of 2010, no “new” revenue will be raised to pay for the candidates’ health care proposals or other new initiatives by simply letting the rate revert to 20 percent.

Report: Taxes Are a Proven Strategy for Reducing Growing Income Inequality

April 11, 2008 4:02 PM | Permalink

A state-by-state report issued jointly by the Center on Budget and Policy Priorities and the Economic Policy Institute finds that income inequality has been increasing, and that taxes are an important tool for closing the widening gap between rich and poor. The report finds that the rate at which income inequality has been increasing has accelerated in recent years, and that the very richest Americans (those in the top 5% of the income distribution) are especially pulling away from the rest of the pack.

Federal taxes, though, are playing an important role in offsetting this trend. Using data from by the US Census, the report finds that before federal taxes are levied, the top fifth of income earners possess 9.3 times more income than the bottom fifth. After federal tax payments are taken into account, however, that number falls to 7.3 times more than the bottom fifth. So while most Americans may dread April 15, it turns out that day has some positive influences for those concerned with the continued concentration of income in the hands of the fortunate few. Unfortunately, this equalizing influence has become less pronounced in recent years, largely as a result of the benefits the rich have received from the Bush tax cuts. Reductions in federal taxes for the rich are therefore at least partially to blame for accelerated income inequality.

Like the Bush tax cuts, the report finds that changes in state tax systems over the past two decades have contributed to the accelerated rate of income inequality. In times of plenty, states were eager to cut progressive income taxes, but whenever budgets began to get tight, states turned primarily to regressive sales taxes and fees to fill the gap. The report warns that with states now “on the brink of another fiscal crisis”, this habit needs to be abandoned.

Increasing taxes, especially on the wealthy, can both slow the trend of increasing income inequality, and actually close budget gaps with less harm to state economies than what typically results from large spending cuts. The report advocates increasing income taxes, enacting or expanding low-income credits, and avoiding corporate and estate tax cuts as sensible tax policies for addressing growing inequalities. As noted in the report, and documented extensively by the Institute on Taxation and Economic Policy, state tax systems, unlike the federal tax system, are regressive and therefore actually widen the income gap. The increasing income inequality documented in this report provides yet another reason for state policymakers to take the regressivity of their tax systems very seriously.

New CTJ Report: House Budget Plan Deals with Tax Policy More Responsibly than the Senate Plan

March 21, 2008 4:52 PM | Permalink

Citizens for Tax Justice has released a new report explaining that the budget resolution approved by the House of Representatives last week deals with tax policy in a more responsible way than the version approved by the Senate. The differences between the two resolutions must be ironed out by a House-Senate conference committee that will negotiate a final version to be approved by both chambers.

The resolution approved by the House offers more responsible tax provisions in a number of areas.

First, the House budget plan uses “reconciliation instructions” that would make it easier to pass a bill to provide relief from the Alternative Minimum Tax (AMT) without increasing the deficit. Any further increase in the national debt is likely to be borne, in the long-run, by the middle-class, so it would be unfair to take on debt to provide AMT relief, which mostly benefits families that are relatively wealthy. The Senate plan, unfortunately, does not use this approach because the Senate assumes that an AMT patch will be deficit-financed.

Second, the House plan does not emphasize cutting the estate tax the way the Senate plan does. CTJ’s data shows that the estate tax now affects fewer than 1 percent of estates. The Senate decided, however, to cut the estate tax for these few, wealthy families and to finance this tax cut with surpluses that may never materialize.

Third, the House plan would not cut taxes on better-off Social Security recipients. Such a tax cut, which the Senate plan includes, would only benefit those seniors who are well-off.

The House-Senate conference committee that takes up the budget resolutions should reject the choices that the Senate has made with regard to taxes and choose the more responsible path set by the House of Representatives.

Budget Debate Turns into a Tax Fight

March 14, 2008 5:14 PM | Permalink

The House and Senate both passed their budget resolutions on Thursday. The Senate budget plan (S. Con. Res. 70) was approved by a vote of 51 to 44, while the House budget plan (House Con. Res. 312) was approved by a vote of 212 to 207.

All 100 Senators showed up Thursday for what is often called "vote-a-rama," an avalanche of amendments that members offer each year to the budget. These amendments generally are not binding, but they put Senators on record as supporting or opposing key tax and spending policies. Lawmakers often offer them to force the opposing party to take votes that might be politically difficult.

Slashing the Estate Tax and Other Tax Cut Promises

The budget resolutions project surpluses in fiscal years 2012 and 2013, although the math used to project these surpluses is questionable. Senator Max Baucus (D-MT) offered an amendment which was adopted by a vote of 99-1 and which shows that the Senate intends to spend this "surplus" on extending parts of the Bush tax cuts that he describes as focused on the "middle-class." While these do include keeping the lowest income tax rate at 10 percent and keeping the $1,000 child credit, they also include a cut in the estate tax to benefit families with estates worth several million dollars.

The amendment, while not binding, puts the Senate on record as supporting a change in the estate tax that is understood to involve freezing in place the estate tax rules that are scheduled to take effect in 2009 (an exemption of $3.5 million per spouse and a top estate tax rate of 45 percent). Under current law, the estate tax rules get more generous each year until the estate tax disappears entirely in 2010, and then in 2011 revert to the rules that were in place during the Clinton years.

CTJ's recent figures on the estate tax show that it affected less than one percent of estates during 2005 and 2006. And those estates were subject to an exemption of $1.5 million per spouse. Now the exemption is $2 million and in 2009 it will be $3.5 million.

Throughout the day on Thursday, Democrats in the Senate used a strategy of countering Republican amendments to provide new deficit-financed tax breaks with very similar amendments that were equally regressive but deficit-neutral.

Alternative Minimum Tax

For example, Senator Arlen Specter (R-PA) offered an amendment that would have repealed a change in the Alternative Minimum Tax (AMT) that was enacted in 1993. The 1993 law increased the AMT for some relatively well-off taxpayers, to correspond with increases in the ordinary income tax. The Specter amendment therefore would cut the AMT from its current level for those well-off taxpayers, and this cut would be deficit-financed. Before members were allowed to vote on this, the body voted on an amendment offered by Senator Kent Conrad (D-ND) to do the exact same thing except with the costs offset. The Conrad amendment didn't specify just how those costs would be offset, and neither amendment would be binding. But apparently enough Senators felt that they would be credited with voting to "do something" about the AMT if they voted for the Conrad amendment, which was approved 53 to 46, instead of the Specter amendment, which failed, 49-50.

(The amendment by Senator Specter seems to be part of a long-term strategy by the Republicans to convince opinion leaders and the public that the expanding reach of the AMT is due to policies enacted during the Clinton administration. To find out why that is NOT the case, read the post on our blog that addressed this last year.)

More Estate Tax

A similar pattern played out in more ominous ways when the Senate turned its attention back to the estate tax. Senator Jon Kyl (R-AZ) offered an amendment that would slash the estate tax further than the Baucus amendment would. The Kyl amendment would have put the Senate on record in support of raising the estate tax exemption to $5 million, or $10 million for married couples, and lowering the top rate to 35 percent. As the Center on Budget and Policy Priorities points out, this would cost about 77 percent as much as fully repealing the estate tax. Before members were allowed to vote on this, a vote was held on an amendment offered by Senator Ken Salazar (D-CO) to make the exact same changes, but with the costs offset in some unspecified way.

Slashing the estate tax any further than it already has been would be an entirely unwarranted boon for America's richest families and is bad policy even if it is done in a deficit-neutral way. If less than one percent of estates were affected by the estate tax when the exemption was $1.5 million, as CTJ has found, it's very hard to imagine why the exemption would need to be raised to $5 million.

Disturbingly, the Salazar amendment got 13 more votes this year than an identical amendment offered by Senator Ben Nelson (D-NE) last year. While the Salazar amendment failed this year, it failed by a vote of 38 to 62, whereas last year it failed 25-74.

Even more disturbing, the Kyl amendment -- the amendment to slash the estate tax WITHOUT offsetting the costs -- nearly passed, with a vote of 50-50. This vote is a signal to organizations working on tax fairness that we must redouble our efforts to educate lawmakers and the public about the extremely regressive effects of repealing or greatly reducing the estate tax.

Social Security

As he has in the previous couple years, Senator Jim Bunning (R-KY) offered an amendment to repeal the tax increase on Social Security benefits that was enacted in 1993. Bunning decided to offset the costs in his amendment with across the board cuts in discretionary spending. His amendment failed, 47-53.

The federal government began taxing a portion of Social Security benefits in 1984, and increased the amount that can be included in taxable income to a maximum of 85 percent in 1993. The idea was to treat Social Security benefits more like other retirement income, such as pensions and IRA distributions. For most retirees, the vast majority of Social Security benefits are income that has never been taxed. Most beneficiaries still pay no federal income taxes on their benefits, but above certain income levels benefits gradually become taxable. For the best off, 85 percent of benefits must be included in taxable income.

Repealing the 1993 provision would do nothing to help the majority of Social Security beneficiaries. Nonetheless, the Democrats offered an alternative amendment that would make the same change as Bunning's amendment, but which also called for some unspecified offsets. That amendment was approved 53-46.

Meanwhile, in the House of Representatives...

Over in the House, the Republicans offered an alternative budget resolution that would make the Bush tax cuts permanent and eventually repeal the AMT. These measures would be paid for with large cuts in Medicare, Medicaid, and other programs, while increasing defense spending. This alternative failed, 157-263.

The Democrats' budget resolution in the House was approved by a vote of 212 to 207. One way the House version differs from the Senate version is the use of what is called "reconciliation." A budget resolution can include "reconciliation instructions" that instruct the relevant committees to write legislation to meet some fiscal goal, and this legislation could be passed in the Senate with only a simple majority of votes rather than the usual 60 needed to overcome a filibuster.

This year, the House plan includes reconciliation instructions to produce a couple revenue-neutral bills. One would delay a scheduled reduction in payments by Medicare to doctors while another would provide another year of relief from the Alternative Minimum Tax (AMT), without increasing the budget deficit. Negotiations that will take place in conference will determine whether reconciliation instructions will survive in the final budget resolution.

House and Senate Committees Approve Budgets that Assume Bush Tax Cuts will Either Expire or Be Offset; Republicans Demand an Increase in the Federal Budget Deficit

March 7, 2008 5:18 PM | Permalink

Yesterday, the House and Senate budget committees both approved their respective versions of the federal budget resolution for fiscal year 2009 on party-line votes. Just as happened last year, both versions assume that the Bush tax cuts will expire at the end of 2010 or that, if they are extended, they will be subject to pay-as-you-go (PAYGO) rules. This means that the costs of any tax cut extension would have to be offset with increased taxes elsewhere or cuts in spending, so as to avoid an increase in the federal budget deficit. The House signaled that is it more committed to PAYGO, however, by including procedural protections for legislation to offset the costs of providing another year of AMT relief.

While the budget document is not binding and merely spells out the tax and spending goals of Congress, it can provide for procedural rules that may make certain legislation affecting the nation's fiscal health easier or more difficult to pass. For example, the budget resolution could include what are called "reconciliation instructions" that would instruct the relevant committees to write legislation to meet some fiscal goal, and this legislation could be passed in the Senate with only a simple majority of votes rather than the usual 60 needed to overcome a filibuster.

Republicans demanded that the reconciliation process be used to extend the Bush tax cuts without offsetting the costs. While budget resolutions are not law and cannot, by themselves, raise taxes, Republican lawmakers have taken to claiming that the resolution includes the largest tax increase in history since it does assume an extension of the Bush tax cuts. They made this same claim last year.

Senate Ready to Cave on PAYGO and Alternative Minimum Tax; House Says 'Not So Fast'

While the Republicans want to use the reconciliation process to increase the budget deficit, the House Democrats want to use it to keep the deficit under control. Their budget plan includes reconciliation instructions to produce revenue-neutral legislation that would delay a scheduled reduction in payments by Medicare to doctors and revenue-neutral legislation that would provide another year of relief from the Alternative Minimum Tax (AMT).

Congress will surely provide another "patch" to the AMT this year, meaning a temporary extension of the increase in exemptions that keep most people from having to worry about the tax. The question is whether it will be paid for or deficit-financed, as was the patch enacted at the end of last year.

Last year the House did pass a bill that would have paid for an AMT patch mainly by closing tax loopholes that allow managers of buyout funds to pay taxes at lower rates and shelter their income in offshore tax avoidance schemes. In the Senate, that bill did get the votes of all the Democrats (except the Presidential candidates, who were campaigning) but could not overcome the filibuster by Republicans. If such a bill was offered this year under the reconciliation process to protect it from a filibuster, its chances of passage would be greatly increased.

Despite this, many Senate Democrats are insisting that they not pursue the matter. Senate Finance Committee chairman Max Baucus was quoted by Congressional Quarterly saying, “I think to cut to the chase, this Congress is not going to pay for AMT. I think it’s a waste of time to have AMT paid for.”

Senate Budget Committee chairman Kent Conrad (D-ND) told BNA that "My strong preference would be to have it offset. That was clearly not the will of the body last year and in our soundings, it's clearly not the will of the body this year."

Senate Democrats Plan to Spend "Surplus"

The budget resolutions project surpluses in fiscal years 2012 and 2013. Whether these surpluses will actually materialize is highly debatable. The budget assumes no more expenditures on Iraq beyond the $70 billion requested by the President. Further, the budget "baseline" used by the Congressional Budget Office, which assumes that the Bush tax cuts will expire at the end of 2010 as laid out under current law, does project a surplus in 2012 and 2013, but only if the Social Security surplus is included in the calculation. The Social Security surplus was not meant to be spent on other programs. It's not remotely clear that Congress can produce a surplus that does not include Social Security.

Nevertheless, Democrats in the Senate are planning to offer an amendment much like the one adopted last year that would show that the body intends to spend that "surplus" on extending parts of the Bush tax cuts that they describe as geared towards the "middle-class." While these do include the 10 percent rate and the child credit, they also include a cut in the estate tax to benefit families with estates worth several million dollars.

President Threatens Vetoes Over Small Differences in Spending

The Senate version calls for $18 billion above what the President has requested in discretionary spending (spending that must be approved each year) while the House version calls for about $22 billion over the President's request. This difference is relatively minor since the entire amount of discretionary spending requested by the President for fiscal year 2009 is $992 billion, and discretionary spending only accounts for around a third of all government spending. Nonetheless, the White House has signaled that the President is ready to veto bills that spend more on these programs than he has proposed, as he did last year. This raises the possibility that Congress could simply rely on continuing resolutions to keep the government running until the next president takes office.

New CTJ Report: Bush's Proposal to Slash Human Services Reveals the True Cost of His Tax Cuts

February 8, 2008 3:23 PM | Permalink

President Bush’s proposed budget plan for fiscal years 2009 through 2013 envisions huge cuts in education, health, environmental and other programs. Most observers believe that such budget cuts are too draconian to ever be implemented. After all, Congress has rejected many of them before. However, as a new report from CTJ explains, they should be taken very seriously in one important sense: They are exactly the sort of public service reductions that would be necessary if the Bush tax cuts are extended.

The Bush administration concedes that the budget deficit will top $400 billion for fiscal year 2009, but claims the deficit will be reduced thereafter. The President continues to assert, as he did last year, that following his plans will lead to a balanced budget in fiscal year 2012. It is therefore informative to examine how public services would be different in 2012 if Congress followed his advice.

Under the Bush budget proposal, federal spending on veterans’ benefits would be 9 percent lower in 2012, as a percentage of the economy, than in 2008. Education and social services would be a fifth lower, natural resources and environmental programs over a fourth lower, transportation a third lower and community development over 62 percent lower. Medicare spending in 2012 would be 9 percent lower than in 2008, as a percentage of the cost of maintaining current services.

Meanwhile, the President proposes to make permanent his tax cuts, which expire at the end of 2010. In 2012, according to the administration’s own numbers, those tax cuts will cost $249 billion, which is just over the $229 billion he wants to cut from domestic programs in that year. So his promise to "balance" the budget in 2012 even while his tax cuts are extended clearly involves a trade of massive reductions in public services in return for tax cuts.

The reality is that the President's tax cuts are actually more expensive than this, and there are many more problems with his budget projections, as explained in the CTJ report.

New CTJ Paper: Wall Street Journal Again Ignores Facts in Its Crusade for High-Income Tax Cuts

February 8, 2008 3:19 PM | Permalink

The Wall Street Journal’s editorial board is at it again. Their latest riposte in their ongoing duel with

mainstream economics is an attempt to cast a normal upswing in capital gains tax revenue, which always occurs in an economic cycle, as proof that cutting capital gains taxes actually increases revenues. As a new paper from CTJ explains, this revenue is well below the peak it reached during the Clinton era — when taxes were higher.

The Journal points to data from the Congressional Budget Office (CBO) that documents this most recent increase in capital gains tax revenue.

But the CBO points out that capital gains "plunged between 2000 and 2002" because of the economic downturn occurring at the time. The implication is that we would expect capital gains to increase from that low point as the economy recovered even without a new capital gains tax break. In fact, it would be very unusual had they not increased from that very low point, regardless of whether the tax laws had changed.

Revenues from capital gains taxes, adjusted for inflation, are well below their level at the end of the Clinton administration, and capital gains tax revenues are not projected to come close to their Clinton-era levels at any time in the next decade.

Measured as a percentage of the economy (GDP), capital gains tax revenues have actually declined even more dramatically.

CTJ Paper Finds President Bush Misleading about Tax Cuts During the State of the Union Address

February 1, 2008 4:28 PM | Permalink

In his final State of the Union Address on Monday, President Bush warned ominously that families would see a tax increase of around $1,800 if his tax cuts are not extended before the end of 2010, when they expire. A new paper from CTJ explains that only 16 percent of taxpayers will get tax cuts that large in 2010, when all the Bush tax cuts are fully phased in. In fact, the majority of taxpayers will get less than a third of that amount in tax cuts. Further, it's highly misleading for the President to imply that the tax cuts for middle-income families might disappear when even the Democratic presidential candidates have proposed to extend them for anyone who is not among the richest 2 or 3 percent of taxpayers.

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