The Bush Tax Cuts: How big are the cuts?
By any measure, the Bush tax cuts have been extraordinarily expensive. The congressional Joint Committee on Taxation calculated a score, or revenue change, for each of the seven major tax cut bills passed during the Bush administration: their combined cost sums to over $2.0 trillion from 2001-17. Extending these tax cuts into the future would carry a similar cost: the Congressional Budget Office (CBO) recently estimated the cost of extending them through 2017 at $1.9 trillion, not counting the costs of debt service, and not counting the cost of indexing the alternative minimum tax (AMT) to inflation to prevent it from undoing much of the cuts.
- In January 2001, at the start of the Bush administration, CBO projected a fiscal surplus of $5.6 trillion spanning fiscal 2002-11. Today, with over half of those fiscal years completed, the budget is on track to have a deficit of $2.1 trillion for the fiscal period 2002-11, for a total deterioration of $7.7 trillion. This drastic reversal is due to a combination of factors including higher government spending and changes in economic conditions, as well as the tax cuts. CBO estimates indicate that about one-third of the fiscal reversal is directly due to the tax cuts.
- If tax cuts are not accompanied by spending cuts, as has been the case during the Bush administration, they will lead to high interest payments on the increased national debt. CBO estimates that the cost of extending the President’s tax cuts through 2017 increases by $340 billion if the cost of extra interest payments is included.
- The future treatment of the AMT has an impact on ("interacts with") the projected cost of extending the Bush tax cuts. Under current law the AMT will revert to pre-2001 levels in 2007 and afterward; given that the AMT is not indexed to inflation, this means it will ensnare many more taxpayers than before, and as a consequence will take back much of tax cuts. CBO estimates that if the AMT were kept at its 2006 level, the cost of extending the Bush tax cuts through 2017 would increase by $470 billion, plus an additional $70 billion in extra debt service costs.
- If one takes into account the direct effects of the tax cuts, extra interest payments, and the extra "interaction" cost of reforming the AMT while extending the Bush tax cuts, the combined cost of extending the tax cuts through 2017 adds up to $2.8 trillion.