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Friday, February 10, 2006

Paul Krugman: The Vanishing Future

No sense letting inconvenient facts get in the way of the administration's determination to make tax cuts permanent:

The Vanishing Future, by Paul Krugman, Commentary, NY Times: At this point we've had six years to grow accustomed to Bush budget chicanery. ... What still amazes me, however, is the sheer childishness of the administration's denials and deceptions. Consider the case of the vanishing future. The story begins in 2001, when President Bush was pushing his first tax cut through Congress. At the time, the administration insisted that its tax-cut plans wouldn't endanger the budget surplus ... But even some Republican senators were skeptical. So the Senate demanded a cap on the tax cut: it should not reduce revenue over the period from 2001 to 2011 by more than $1.35 trillion.

The administration met this requirement ... by "sunsetting" the tax cut, making the whole thing expire at the end of 2010. This was obviously silly. For example, under the law as written there will be no federal tax on the estates of wealthy people who die in 2010. But the estate tax will return in 2011 with a maximum rate of 55 percent, creating some interesting incentives. I suggested, back in 2001, that the legislation be renamed the Throw Momma From the Train Act.

It ... quickly became clear that the budget forecasts the administration used to justify the 2001 tax cut were wildly overoptimistic. The federal government faced a future of deficits, not surpluses, as far as the eye could see. ... What were budget officials to do? You almost have to admire their brazenness: they made the future disappear. Clinton-era budgets offered 10-year projections of spending and revenues. But the Bush administration slashed the budget horizon to five years. This ... greatly aided the campaign to make the 2001 tax cut permanent because ... the ... budget analyses no longer covered the years after 2010, the revenue losses from extending the tax cut became invisible.

But now it's 2006, and even a five-year projection covers the period from 2007 to 2011 — which means including a year in which making the Bush tax cuts permanent will cost ... $119.7 billion... Has the administration finally run out of ways to avoid budget reality? Not quite. ... until this year budget documents contained a standard table titled "Impact of Budget Policy," ... But this year, that table is missing. So you have to do some detective work to figure out what's really going on.

Now, the administration has proposed ... cuts that are both cruel and implausible. For example, ... the budget calls for a 13 percent cut in spending on veterans' health care, adjusted for inflation, over the next five years. Yet even these cuts would fall far short of making up for ... making the tax cuts permanent. The administration's own estimate, which can be deduced from its budget tables, is that extending the tax cuts would cost an average of $235 billion in each year from 2012 through 2016.

In other words, the administration has no idea how to make its tax cuts feasible in the long run. Yet it has never ... allowed unfavorable facts to affect its determination to make the tax cuts permanent. Instead, it has devoted all its efforts to hiding those awkward facts from public view. (Any resemblance to, say, its Iraq strategy is no coincidence.) ... The 2007 budget makes it clear, once and for all, that the tax cuts can't be offset with spending cuts. But Bush officials have decided to ignore that unpleasant fact, and let some future administration deal with the mess they have created.

Previous (2/6) column: Paul Krugman:  The Effectiveness Thing
Next (2/13) column: Paul Krugman:  Debt and Denial

    Posted by on Friday, February 10, 2006 at 12:15 AM in Budget Deficit, Economics, Politics, Taxes | Permalink  TrackBack (0)  Comments (14)


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