"If all of the [Bush-era] tax cuts expire on schedule, the budget will be close to being balanced in four years."
Bobby Scott on Tuesday, October 12th, 2010 in a statement in the Times-Dispatch voters' guide
Bobby Scott said the budget will be "close to" balanced in four years if the Bush tax cuts expire on schedule
On his way to re-election, Rep. Robert C. "Bobby" Scott made no secret that he’d like to see the Bush-era tax cuts expire. All of them.
Distancing himself from Democrat colleagues, Scott, who represents Virginia’s 3rd Congressional District, said the cuts from 2001 and 2003 should not be continued even for those bringing home less than $250,000 a year.
"Extending the Bush tax cuts will add $3.6 trillion to the national debt," he wrote in a Richmond Times-Dispatch voter guide. "If all of the tax cuts expire on schedule, the budget will be close to being balanced in 4 years."
We were curious about the claim that elimination of the Bush-era tax cuts could mean an almost-balanced budget in just a few years.
But before looking at whether or not the budget could be balanced in four years, we wanted to make sure the $3.6 trillion figure checked out.
Although estimates vary, yes, that’s pretty close to official 10-year projections of the cost to extend all of the Bush-era tax cuts including adjustments to the alternative minimum tax, or AMT, a substitute income tax levied against some high earners.
In 2001, after the first round of tax cuts, the Bush administration realized that without adjusting the AMT, about 25 percent of the cuts weren’t getting to people. To fix that, they passed a three-year adjustment raising the AMT exemption levels and have extended it every year since.
"Patching the AMT prevents about 20 million more Americans from paying higher taxes," said Gerald Prante, a senior economist with the Tax Foundation, a business-backed tax policy group.
According to July analysis from the Office of Management and Budget, the cost of extending the tax cuts and continuing to adjust the AMT would be about $3.6 trillion over 10 years.
An August report by the Congressional Budget Office actually shows a higher figure of $3.9 trillion as the 10-year cost of extending the cuts and patching the AMT. The U.S. Department of Treasury in February estimated the cost a little higher than $3.7 trillion.
In case you’re curious, extending tax cuts for those earning more than $250,000 a year accounts for about $679 billion for the 10 years while patching the AMT accounts for about $672 billion, according to the nonpartisan Tax Policy Center. Tax relief for familes earing $250,000 or less costs about $2.3 trillion over 10 years.
So, let’s determine if letting the tax cuts expire and not patching the AMT could balance the budget in four years. -- or at least come close, as Scott says.
To do that, we looked at estimated annual costs of continuing the tax cuts and compared that to projected deficit figures..
According to the OMB report in July, the projected deficit in 2014 is $896 billion. That same year, the additional tax revenue from not extending the tax cuts nor patching the AMT would be $320 billion, reducing the deficit to $576 billion. Not a balanced budget.
In 2015, the story is about the same. The projected deficit that year is $985 billion and the the combined estimated cost of continuing the tax cuts and patching the AMT is $353 billion. So, even if the cuts expire and the AMT is not patched, that would leave a deficit of $632 billion. Again, nowhere near balanced.
"So no, you cannot get rid of the deficit by letting the Bush tax cuts expire anytime within the next 10-year period," said Prante. "For any given year, it’s not anywhere close to the size of the deficit."
We thought we’d get another perspective just to be sure.
Robert Williams, senior fellow for the Tax Policy Center, pointed to numbers from the CBO’s August budget update, which project that the deficit would fall below 3 percent of Gross Domestic Product by 2014 if the tax cuts expire. Three percent of GDP is a "sustainable" deficit level, according to Peter Orszag, former director of the White House Office of Management and Budget.
Williams said, "One could consider a deficit of that magnitude ‘nearly balanced’ in the sense that debt as a percentage of GDP wouldn't rise if growth resumes its normal rate of more than 3 percent."
But that seems like quite a stretch to us. So, let’s review.
We must look at the projected annual cost of the tax cuts, if extended, to determine how much could be saved by allowing them to expire. Depending on the source, those estimates when coupled with the AMT adjustment, range between $200 to $500 billion annually over the next 10 years.
But with budget deficits projected to hover around $1 trillion a year during that time period, the extra tax revenue from allowing the cuts to expire wouldn’t even cut the deficit in half in four years, much less balance the budget.
So we rate the claim False.
Published: Friday, November 5th, 2010 at 4:09 p.m.
Richmond Times-Dispatch, Voter Guide, October 2010.
Office of Management and Budget, Mid-Session Review, July 23, 2010.
Congressional Budget Office, The Budget and Economic Outlook: An Update, Aug. 18, 2010.
Joint Committee on Taxation, "Present Law And The President’s Fiscal Year 2011 Budget Proposals Related To Selected Individual Income Tax Provisions Scheduled To Expire Under The Sunset Provisions Of The Economic Growth And Tax Relief Reconciliation Act Of 2001" (report), July 12, 2010
Congressional Budget Office, "Income Category Minimums for All Households, by Household Income Category, 1979-2007" (table), accessed July 21, 2010
Wall Street Journal, "Bush Tax Cuts Roil Democrats," July 22, 2010
The Hill, "Democrats May Stop Bush-Era Tax Cuts for Wealthy From Expiring," July 22, 2010
Department of the Treasury, General Explanations of the Administration’s Fisal Year 2011 Revenue Proposals, February 2010.
The New York Times, "One Nation, Two Deficits", Sept. 6, 2010.
Interview with Gerald Prante, senior economist, The Tax Foundation.
Email interview with Robert Williams, senior fellow, Tax Policy Center.
Tax Policy Center, 2011 Budget Tax Proposals, accessed Nov. 5, 2010.
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