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September 27, 2010
The Pending Expiration of the Bush Tax Cuts and the Economy

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By Thomas L. Hungerford

Thomas L. Hungerford is a specialist in public finance at the Congressional Research Service. The views expressed here do not represent the views of the CRS or the Library of Congress.

A series of tax cuts were enacted early in the George W. Bush administration by the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003. These tax cuts, collectively known as the Bush tax cuts, are scheduled to expire at the end of 2010. However, the U.S. economy entered into a recession in December 2007. Most economic forecasts suggest that the short-term economic outlook is poor and likely will be characterized by high unemployment and sluggish economic growth and that the long-term fiscal situation is unsustainable.

There are several options that Congress can consider regarding the Bush tax cuts, each of which option strikes a different balance between fostering economic growth and restoring fiscal sustainability. At one extreme, allowing the Bush tax cuts to expire as scheduled will improve the fiscal condition but could stifle the economic recovery. At the other extreme, permanently extending all the Bush tax cuts would not undercut the economic recovery but would worsen the longer-term fiscal outlook and possibly indicate a lack of congressional commitment in dealing with the long-term fiscal situation. The Obama administration has proposed allowing the Bush tax cuts to expire for high-income taxpayers and permanently extending them for middle-income taxpayers. A temporary extension of the middle-income Bush tax cuts, however, could provide time for Congress to consider tax reform and provide a deadline to complete deliberations. Allowing the tax cuts for high-income taxpayers to expire as scheduled could help reduce budget deficits and income inequality in the short term without stifling the economic recovery.

Copyright 2010 Thomas L. Hungerford.
All rights reserved.


A series of tax cuts were enacted early in the George W. Bush administration by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA).1 These tax cuts, collectively known as the Bush tax cuts, are scheduled to expire at the end of 2010. Beginning in 2011, many of the individual income tax parameters (such as tax rates) will revert to 2000 levels.

The pending expiration of the Bush tax cuts has generated a great deal of attention, as reflected by editorials and opinion pieces in national newspapers and congressional hearings. The proposals regarding the Bush tax cuts are generally not about whether to let the tax cuts expire as scheduled, but rather about which tax cuts to extend and for how long. This article examines the Bush tax cuts within the context of the current and long-term economic and budgetary environment.

The major tax provisions in EGTRRA and JGTRRA that are part of the debate over the Bush tax cuts are the reduced individual income tax rates, the reduction of the marriage penalty (and increase in the marriage bonus), the repeal of the personal exemption phaseout and the limitation on itemized deductions, the reduced tax rates on long-term capital gains and qualified dividends, and expanded tax credits. Other provisions included in EGTRRA and JGTRRA, such as the estate tax, are not considered in this study.

A. Economic and Budgetary Environment

The U.S. economy entered into a recession in December 2007.2 Between the fourth quarter of 2007 and the second quarter of 2009, the economy shrank, with real GDP falling by 4.1 percent. The unemployment rate increased from 4.9 percent in December 2007 to 10.1 percent by October 2009, and it still exceeds 9 percent. As a result of reduced economic activity and government efforts to stimulate the economy, the federal budget deficit increased from 1.2 percent of GDP in fiscal 2007 to 9.9 percent of GDP in fiscal 2009.

1. The economy. The recession beginning in December 2007 is the most severe recession since the Great Depression and has been referred to as the Great Recession. The economy started to grow after mid-2009. One measure that has tracked economic activity fairly well in the past is the Federal Reserve Board's industrial production index.3 The industrial production index started to turn upward after May 2009, and the Business Cycle Dating Committee of the National Bureau of Economic Research has determined June 2009 as the date of the end of the recession.4

The economic recovery, however, remains fragile and the labor market has not recovered. Figure 1 shows employment for the first month of the recession and the next 36 months. The trend in employment (as a percentage of employment in the first month of the recession) is compared with two other deep and prolonged recessions of similar duration (assuming the 2007-2009 recession ended in July 2009). For these latter two recessions, the employment level began increasing within a month or two after the end of the recession (the end of the recession is denoted by the vertical line in the figure). In the 2007-2009 recession, employment did not hit bottom until about 25 months after the start of the recession (in December 2009). Further, the employment level has fallen since May 2010, and by July 2010 it stood at 94 percent of the December 2007 level.


Figure 1. Employment Levels During Selected Recessions



Source: Author's analysis of U.S. Bureau of Labor Statistics data.

Note: The vertical line marks the end of the 1973-1975 and 1981-1982 recessions.

Weakness in the labor market is further indicated by the proportion of the labor force that has been unemployed for at least six months (the long-term unemployed). Figure 2 shows the monthly unemployment and long-term unemployment rates since 1948. The long-term unemployment rate has generally tracked the unemployment rate over the business cycle. Over a business cycle, the long-term unemployment rate is at its lowest point at or near the beginning of a recession and then reaches a peak a few months after the end of the recession (typically within six months). Like the monthly unemployment rate, the long-term unemployment rate is a lagging indicator -- the labor market does not begin to recover from the recession until some time after the official end of the recession. After the 1990-1991 and 2001 recessions, however, the long-term unemployment rate did not reach its peak until 15 and 19 months, respectively, after the recession ended. The long-term unemployment rate is currently higher than at any time over the past 62 years -- in July 2010, 4.3 percent of the labor force or about 45 percent of the unemployed had been out of work for six months or more.


Figure 2. Monthly Unemployment Rate and
Long-Term Unemployment Rate, 1948-2010



Source: Author's analysis of U.S. Bureau of Labor Statistics data.

In early August 2010, the Federal Reserve Board reported that "the pace of recovery in output and employment has slowed in recent months."5 Robert Shiller of Yale University reportedly put the chances of a double-dip recession at more than 50-50 because of the high unemployment.6 In addition to the labor market, the housing market continues to be weak. In its latest release, the National Association of Realtors reports that existing home sales declined by 27.2 percent between June and July 2010. Mark Zandi of Moody's Analyticals has reportedly said the housing market is in a double-dip recession.7

The economic outlook over the next few months is not bright and will likely be characterized by high unemployment and sluggish economic growth. For example, the Blue Chip consensus forecast has the unemployment rate staying above 9 percent until the fourth quarter of 2011.8 And Carmen Reinhart and Vincent Reinhart show that real per capita GDP growth rates tend to be low during the decade following a severe financial crisis and synchronous worldwide shocks.9

2. The federal budget. Before the Bush tax cuts were enacted, the Congressional Budget Office projected gradually rising federal budget surpluses -- from 2.7 percent of GDP in 2001 to 5.3 percent of GDP by 2011.10 Within a few years, the CBO was projecting budget deficits. The Bush tax cuts, with a $1 trillion 10-year price tag, contributed to this shift from budget surpluses to deficits. Other major contributing factors included the 2001 recession, the increase in defense spending for the wars in Iraq and Afghanistan, and the Medicare prescription drug benefit (enacted in the Medicare Prescription Drug, Improvement, and Moderation Act of 2003). By the time the 2007-2009 recession started, the CBO was projecting deficits between fiscal 2008 and fiscal 2011 equivalent to more than 1 percent of GDP (with budget surpluses after 2011).11

Nonetheless, federal budget conditions before the 2007-2009 recession were not much different from the conditions before previous recessions. Figure 3 shows the budget deficit as a percentage of GDP for three years: the fiscal year before the start of the recession, the fiscal year in which the recession started, and the next fiscal year. The 2007-2009 recession is compared with the average of the prior six recessions. In the year before the Great Recession (2006), the budget deficit was 1.2 percent of GDP compared to 1.6 percent of GDP, on average, for the previous six recessions. The situation, however, is very different for the next two fiscal years. The federal deficit increased to 3.2 percent of GDP in the first year of the 2007-2009 recession (compared with 1.4 percent of GDP for previous recessions) and then to almost 10 percent of GDP in the next year (compared with 2.2 percent of GDP in previous recessions). The dramatic increase in the federal deficit after 2007 is because of the recession and the federal government's efforts to promote economic recovery, such as the Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009.


Figure 3. Deficits as a Percentage of GDP,
2007-2009 Recession Compared to Prior Recessions



Source: Author's calculations based on Office of Management and Budget data.

The deficit is just one facet of the fiscal condition. Another is federal debt held by the public. Figure 4 displays federal debt held by the public as a percentage of GDP from 1990 to 2009. Federal debt in 2009 was equal to 53 percent of GDP -- a level higher than at any time in U.S. history except for World War II. Between 2007 and 2009, federal debt increased by almost 17 percent of GDP. Most large increases in debt have been due to wars (the Civil War, World War I, and World War II) and the Great Depression, but debt also increased dramatically between 1981 and 1994 -- by 23 percent -- when taxes were reduced and defense spending increased.


Figure 4. Debt Held by the Public as a Percentage of GDP,
1790-2009



Source: Author's calculations based on Congressional Budget Office and Office of Management and Budget data.

B. The Bush Tax Cuts

Several tax provisions were included in EGTRRA and JGTRRA. However, only a few are the focus of debate, which are:

  • the 10, 25, and 28 percent tax rates: the 10 percent tax rate was introduced and the 28 and 31 percent tax rates were reduced to 25 and 28 percent, respectively;
  • the 33 and 35 percent tax rates: the 36 and 39.6 percent tax rates were reduced to 33 and 35 percent, respectively;
  • the reduced marriage penalty: the 15 percent tax bracket was expanded and the standard deduction for couples was increased;
  • the repeal of the personal exemption phaseout (PEP) and the limitation on itemized deduction (Pease): both PEP and Pease were gradually phased out and eliminated in 2010;
  • the reduced long-term capital gains tax rate: tax rate was reduced from 10 and 20 percent to zero and 15 percent, respectively;
  • the reduced tax rate on qualified dividends: qualified dividends are taxed at long-term capital gains tax rates rather than at the same tax rates as ordinary income; and
  • the expanded tax credits: the child tax credit, the earned income tax credit, and education incentives were expanded.

The Bush tax cuts are scheduled to expire at the end of 2010, and the tax parameters revert to their 2000 values (the current-law baseline). Some policymakers have proposed to permanently extend the Bush tax cuts. The CBO estimates that permanently extending the tax provisions of EGTRRA and JGTRRA would increase the deficit by $1.215 trillion over 5 years and by $3.312 trillion over 10 years.12

Figure 5 displays the trend in federal deficits as a percentage of GDP from 1980 to 2020. Under current law the federal deficit is projected to decline from 9.2 percent of GDP in 2010 to 3 percent of GDP by 2020. If all the Bush tax cuts are permanently extended (including the repeal of the estate tax) the deficit is projected to be 5.1 percent of GDP in 2020 and on a clearly unsustainable path of increasing deficits. Neither of the projections takes into consideration likely annual changes to the alternative minimum tax, with a projected 10-year cost of about $1.5 trillion.13


Figure 5. Federal Deficits as a Percentage of GDP,
Two Scenarios



Source: Author's analysis of CBO and Joint Committee on Taxation estimates

Figure 6 shows the trend in debt held by the public as a percentage of GDP. Under both current law and the permanent extension of the Bush tax cuts, debt as a percentage of GDP is much higher in 2020 than in 2009. Further, under both scenarios debt is trending upward relative to GDP after 2014.


Figure 6. Debt Held by the Public as a Percentage of GDP,
Two Scenarios



Source: Author's analysis of CBO and JCT estimates.

1. Revenue loss from the Bush tax cut provisions. The estimated budgetary costs of permanently extending the provisions of the Bush tax cuts are reported in Table 1. Over five years, extending the provisions is estimated to reduce tax revenues by $1.141 trillion. The 10-year revenue loss is estimated to be $2.805 trillion. By far the costliest provision to extend is the reduced individual income tax rates (which includes keeping the 10, 25, 28, 33, and 35 percent tax rates), accounting for more than 50 percent of the total revenue loss. The estimated cost of extending these provisions amounts to over half of the estimated budget deficit that would result from allowing the Bush tax cuts to expire as scheduled.14

                                  Table 1.
            Revenue Estimates of Bush Tax Cut Provisions, 2011-2020
                             (millions of dollars)

 Provision                  2011        2012        2013        2014
 _____________________________________________________________________

 Reduced tax rates        -80,985    -124,474    -135,234    -145,800
 Repeal PEP/Pease          -6,167     -13,079     -14,641     -16,269
 Reduced capital           -7,737      -1,535      -4,883      -9,429
 gains tax rate
 Reduced dividends        -22,869      -4,070     -12,415     -21,501
 tax rate
 Reduced marriage         -15,030     -27,580     -29,169     -30,945
 penalty
 Expanded tax credits      -5,170     -41,724     -41,648     -41,787
 Total                   -137,958    -212,462    -237,990    -265,731

                            Table 1. (Continued)

 Provision                  2015        2016        2017         2018
 _____________________________________________________________________

 Reduced tax rates       -155,995    -166,159    -176,260     -186,268
 Repeal PEP/Pease         -17,842     -19,369     -20,905      -22,416
 Reduced capital          -12,275     -13,288     -14,211      -15,107
 gains tax rate
 Reduced dividends        -26,648     -27,634     -28,619      -29,378
 tax rate
 Reduced marriage         -32,741     -34,288     -35,916      -37,574
 penalty
 Expanded tax credits     -41,826     -42,011     -42,126      -42,363
 Total                   -287,327    -302,749    -318,037     -333,106

                            Table 1. (Continued)

 Provision                2019        2020      2011-2015     2011-2020
 ______________________________________________________________________

 Reduced tax rates     -196,332    -206,691      -642,488    -1,574,198
 Repeal PEP/Pease       -23,850     -25,177       -67,998      -179,715
 Reduced capital        -15,959     -16,772       -35,859      -111,196
 gains tax rate
 Reduced dividends      -29,884     -30,236       -87,503      -233,254
 tax rate
 Reduced marriage       -39,051     -40,431      -135,465      -322,725
 penalty
 Expanded tax credits   -42,588     -42,798      -172,155      -384,041
 Total                 -347,664    -362,105    -1,141,468    -2,805,129
 ______________________________________________________________________

 Source: Treasury Department, "General Explanations of the
 Administration's Fiscal Year 2011 Revenue Proposals," Feb. 2010.

2. Distributional effects of the Bush tax cut provisions. The various provisions making up the Bush tax cuts have different distributional effects. Table 2 reports what the percentage change in after-tax income for each tax provision would be in 2012 if it were permanently extended.15 The baseline is based on current law in which the Bush tax cuts are allowed to expire as scheduled at the end of 2010. This estimate provides information on who benefits from each provision and by how much. The modified Suits index is also calculated and reported for each provision. The Suits index is a measure of the progressivity of tax benefits and varies between -1 (completely regressive) and +1 (completely progressive).16 The Suits index is negative (and tax benefits are regressively distributed) if the benefits from the provision are predominately received by taxpayers in the upper part of the income distribution. It is positive if the benefits predominately go to low-income taxpayers. It is zero if the benefits are proportionately distributed throughout the income distribution.

The second and third columns in Table 2 report the distributional effects of extending the reduced tax rate provisions. The two columns split the tax rate reductions into those targeting low- and middle-income taxpayers and those targeting high-income taxpayers. Extending the 10, 25, and 28 percent tax rates benefits taxpayers throughout the income distribution (see column 2). The Suits index is slightly positive (0.0895) but is much closer to 0 than to 1 -- the benefits are slightly progressive but close to being proportional. The benefits of extending the 33 and 35 percent tax rates are entirely confined to the richest 5 percent of taxpayers (see column 3), and the richest 1 percent would see their after-tax income increase by about 2 percent (or about $21,500). The Suits index is -0.7979, suggesting that the benefits are highly regressive.

Extending the repeal of PEP and Pease would also benefit high-income taxpayers (the richest 5 percent); the benefits are very regressively distributed (the Suits index is -0.7325). The reduced tax rates on capital gains and dividends (see columns 5 and 6) primarily benefit upper-income taxpayers and are regressively distributed. The reduced rates on capital gains benefit the upper 60 percent of the income distribution, but the richest 1 percent see the largest increase in after-tax income while the reduced dividends tax rates benefit the upper 20 percent. In both cases, the Suits index is negative.

Extending the reduction in the marriage penalty would benefit married taxpayers throughout the income distribution. The Suits index is 0.1048, suggesting that the benefits are slightly progressive but close to being proportional. The extension of the expanded tax credits primarily benefits taxpayers below the 80th percentile in the income distribution. The Suits index (0.6733) shows that the benefits are progressively distributed.

With the benefits of the different tax provisions accruing to taxpayers in different parts of the income distribution, decisions regarding the Bush tax cut provisions will affect income inequality. In a recent article, I examined the effects of various tax provisions (including selected provisions of the Bush tax cuts) on income inequality.17 The results show that the reduction in the tax rates increased income inequality as did the reduction in the capital gains and dividends tax rate, and the repeal of PEP and Pease. Both the child tax credit and the EITC reduce income inequality.

C. Options Regarding the Bush Tax Cuts

There are several options that Congress can consider regarding the Bush tax cuts. The two extreme options have been discussed along the following lines. Allowing the Bush tax cuts to expire as scheduled will somewhat improve the fiscal condition but could stifle the economic recovery. At the other extreme, permanently extending all the Bush tax cuts would not undercut the economic recovery but would worsen the longer-term fiscal outlook and possibly signal a lack of progress in dealing with the long-term fiscal situation. In either case, the United States is facing increasing budget deficits and federal debt levels. A recent study by Alan J. Auerbach and William G. Gale projects that tax revenue would have to be permanently increased by 4.6 percent of GDP just to keep the debt-to-GDP ratio at the current level over the next 75 years under the current-law scenario (that is, allowing the Bush tax cuts to expire).18 They refer to this as a fiscal gap of 4.6 percent.19 If the Bush tax cuts were permanently extended, the estimated fiscal gap rises to 7.2 percent. Auerbach and Gale project that by 2085, debt as a percentage of GDP would approach 600 percent under the current-law scenario and 900 percent if the Bush tax cuts are extended -- extraordinary levels that are unprecedented for the United States. (See Figure 4.)

1. Obama administration proposal. The Obama administration has proposed to allow the Bush tax cuts to expire for high-income taxpayers (single taxpayers with income exceeding $200,000 and married taxpayers with income greater than $250,000 -- the richest 2 percent of taxpayers) and to permanently extend the tax cuts for other taxpayers (the middle-income tax cuts). The specific proposals are to reinstate the 39.6 percent tax rate, reinstate the 36 percent tax rate for high-income taxpayers, reinstate PEP and Pease for high-income taxpayers, and increase the long-term capital gains and qualified dividend tax rate to 20 percent for high-income taxpayers. Compared with permanently extending all of the Bush tax cuts, this proposal is projected to increase tax revenues by $252 billion over 5 years and by $678 billion over 10 years.20 Auerbach and Gale, however, estimate that the fiscal gap under the Obama administration proposal is 6.4 percent, which still leaves federal debt on an unsustainable path that would approach 750 percent of GDP by 2085.

The Obama administration argues that the middle-income tax cuts are necessary to keep the economic recovery on track by preventing a sharp fall in the disposable income of consumers.21 It further argues that allowing the tax cuts to expire for high-income taxpayers will contribute to restoring fiscal responsibility. Senate Finance Committee Chair Max Baucus, D-Mont., has expressed support for proposals broadly consistent with the Obama administration proposal.22

The president established the National Commission on Fiscal Responsibility and Reform by executive order on February 18, 2010. The commission is tasked with looking for policies, including tax policies, to improve the medium-term fiscal situation and achieve long-term fiscal sustainability. The commission's report is due in December. Given the long-term fiscal condition and a recognition that tax policy is an important tool to be used, it is unlikely that the tax code and the middle-income tax cuts will remain unchanged for long.

                                    Table 2.
           Percentage Change in After-Tax Income Due to Bush Tax Cut
                         Provisions by Income Category

                       Tax       Tax
                      Rates:    Rates:                       Reduced
                     10%, 25%    33%,       Repeal PEP/    Capital Gains
                       28%       35%           Pease         Tax Rate
 ________________________________________________________________________

 Lowest Quintile       0.1       0.0            0.0            0.0
 Quintile 2            1.0       0.0            0.0            0.0
 Quintile 3            1.3       0.0            0.0            0.1
 Quintile 4            1.3       0.0            0.0            0.1
 80-90 Percentile      1.6       0.0            0.0            0.1
 90-95 Percentile      1.8       0.0            0.0            0.2
 95-99 Percentile      1.5       0.1            0.3            0.4
 Highest 1 Percent     0.3       1.9            0.9            1.3
 All                   1.2       0.3            0.2            0.3
 Suits Index         0.0895   -0.7979        -0.7325        -0.5768

                              Table 2. (Continued)

                         Reduced      Reduced                      Average
                         Dividends    Marriage    Expended Tax    After-Tax
                         Tax Rate     Penalty       Credits        Income
 ___________________________________________________________________________

 Lowest Quintile           0.0          0.2           0.9         $10,702
 Quintile 2                0.0          0.3           1.3         $23,359
 Quintile 3                0.0          0.1           0.7         $38,362
 Quintile 4                0.0          0.4           0.4         $61,176
 80-90 Percentile          0.1          0.7           0.1         $88,999
 90-95 Percentile          0.1          0.5           0.0        $124,146
 95-99 Percentile          0.2          0.3           0.0        $213,506
 Highest 1 Percent         0.8          0.1           0.0      $1,071,100
 All                       0.2          0.3           0.3         $58,277
 Suits Index            -0.6641       0.1048        0.6733
 _________________________________________________________________________

 Source: Author's analysis of Tax Policy Center estimates.

2. Temporary extension of some or all Bush tax cut provisions. Some have proposed temporarily extending some or all of the Bush tax cuts.23 Those wanting to extend all the Bush tax cut provisions argue that raising taxes during a weak recovery could reduce economic growth and push the economy back into recession. Mark Zandi and some Democrats have reportedly advocated permanently extending the middle-income tax cuts and temporarily extending the tax cuts targeting high-income taxpayers.24

Others have advocated temporarily extending the middle-income tax cuts and allowing the tax cuts targeting high-income taxpayers to expire as scheduled at the end of 2010.25 It can be argued that permanently extending all of the Bush tax cuts could complicate future tax reforms to deal with unsustainable deficits and debt trends. A temporary extension could provide time for Congress to consider tax reform and also provide a deadline to complete deliberations. Further, allowing the high-income tax cuts to expire as scheduled could help reduce budget deficits in the short term without stifling the economic recovery.26 Research has shown that tax cuts directed to high-income taxpayers have a small stimulative effect because those individuals tend to save any additional income.27 Increasing tax rates for the richest 2 percent of taxpayers (by allowing the high-income tax cuts to expire) will likely neither significantly decrease consumer expenditures nor adversely affect small-business and job growth.28 This policy could allow Congress to make a credible commitment toward restoring fiscal sustainability.

D. Concluding Remarks

The economic environment in which the fate of the Bush tax cuts is being debated is well understood. In the short term, the economy is growing slowly and unemployment is likely to remain near double digits for several more months. The long-term federal government fiscal situation is clearly unsustainable. Less well known but important is the rising income inequality in the United States, which can have negative consequences for health and economic well-being. Finding policies to effectively address all three issues will be difficult at best.

Congress is facing a policy debate -- the fate of the Bush tax cuts -- that will affect each of these issues. There are several options Congress can consider regarding the Bush tax cuts, and each of the options strikes a different balance between fostering economic growth and restoring fiscal sustainability. Perhaps the best option is to temporarily extend the middle-income Bush tax cuts (for a year or two) and let the high-income Bush tax cuts expire as scheduled at the end of 2010. This option will not have much of a negative impact on the economy, could reduce income inequality, and allow Congress to show that it is serious about bringing the federal budget under control.


FOOTNOTES

1 For more details, see Maxim Shvedov, "Expiration and Extension of the Individual Income Tax Cuts First Enacted in 2001 and 2003," Congressional Research Service Report R41111 (May 5, 2010), Doc 2010-10295, 2010 TNT 89-78.

2 Business cycle peaks (start of a recession) and troughs (end of a recession) are determined by the Business Cycle Dating Committee of the National Bureau of Economic Research.

3 This measure is one of the economic indicators used by the Business Cycle Dating Committee in its determination of the economy's turning points.

4 The latest communication from the Business Cycle Dating Committee was issued on September 20, 2010, and is available at http://www.nber.org/cycles/sept.2010.html.

5 Board of Governors of the Federal Reserve System, Press Release, Aug. 10, 2010, available at http://www.federalreserve.gov/newsevents/press/monetary/20100810a.htm.

6 Cynthia Lin, "Shiller Sees Double-Dip Recession if Jobs Aren't Created," Marketwatch, Aug. 11, 2010, available at http://www.marketwatch.com/story/shiller-sees-double-dip-if-jobs-arent-created-2010-08-11.

7 Michelle Lodge, "Housing in 'Double-Dip': Economist Zandi," CNBC, Aug. 23, 2010, available at http://www.cnbc.com/id/38820610.

8 Blue Chip Economic Indicators, vol. 35, no. 8 (Aug. 10, 2010).

9 Carmen M. Reinhart and Vincent R. Reinhart, "After the Fall," presented at the Federal Reserve Bank of Kansas City Jackson Hole Symposium, Jackson, Wyo., Aug. 26-28, 2010.

10 CBO, "The Budget and Economic Outlook: Fiscal Years 2002-2011" (Jan. 2001), Doc 2001-3113, 2001 TNT 22-20.

11 CBO, "The Budget and Economic Outlook: Fiscal Years 2008 to 2018" (Jan. 2008), Doc 2008-1359 , 2008 TNT 16-13.

12 CBO, "The Budget and Economic Outlook: An Update" (Aug. 2010), Table 1.7. The increase in debt service is included in these estimates.

13 The Tax Policy Center estimates that 28.5 million taxpayers would be subject to the AMT without the annual AMT fix. In 2009, 4 million taxpayers were subject to the AMT. See Tax Policy Center, "Aggregate AMT Projections, 2009-2020," Table T10-0106 (May 3, 2010), Doc 2010-9847, 2010 TNT 85-33.

14 Interactions with the AMT are not included in these estimates.

15 The estimates were prepared by the Urban-Brookings Tax Policy Center.

16 See Daniel B. Suits, "Measurement of Tax Progressivity," 67 Am. Econ. Rev. 747 (1977). The Suits index was originally developed to measure the progressivity of the tax burden. Because tax benefits are considered, the modified Suits index is the negative of the original Suits index.

17 Thomas L. Hungerford, "The Redistributive Effect of Selected Federal Transfer and Tax Provisions," 38 Pub. Fin. Rev. 450 (2010).

18 Alan J. Auerbach and William G. Gale, "Déjà Vu All Over Again: On the Dismal Prospects for the Federal Budget," 63 Nat. Tax J. 543 (2010).

19 Id. Auerbach and Gale define the fiscal gap size as a percentage of GDP of the immediate and permanent tax increase or reduction in noninterest federal spending that would keep the long-run debt-to-GDP ratio at the current level.

20 Treasury Dept., "General Explanations of the Administration's Fiscal Year 2011 Revenue Proposals" (Feb. 2010), Doc 2010-2363 , 2010 TNT 21-20.

21 See Timothy Geithner, "Remarks as Prepared for Delivery at Center for American Progress," TG-814 (Aug. 4, 2010), Doc 2010-17457, 2010 TNT 150-35.

22 Finance Committee news release, "Baucus Examines Options for Extending Middle-Class Tax Cuts" (July 14, 2010), Doc 2010-15715, 2010 TNT 135-43.

23 See, e.g., Peter Orszag, "One Nation, Two Deficits," The New York Times, Sept. 7, 2010, at A23.

24 Lori Montgomery, "Shaky Economy Alters Tax-Cut Dynamic in Congress," The Washington Post, Aug. 27, 2010, at A2.

25 See, e.g., Leonard E. Burman, Statement Before the Senate Committee on Finance, Hearings on the Future of Individual Tax Rates: Effects on Economic Growth and Distribution (July 14, 2010), Doc 2010-15651, 2010 TNT 135-66.

26 Tax cuts to the wealthy tend to be saved rather than spent and have little effect on short-term economic growth. See Jane G. Gravelle, Thomas L. Hungerford, and Marc Labonte, "Economic Stimulus: Issues and Policies," CRS Report R40104 (Feb. 20, 2009), Doc 2009-4625, 2009 TNT 40-17.

27 Id.

28 See Jane G. Gravelle, "Small Business and the Expiration of the 2001 Tax Rate Reductions: Economic Issues," CRS Report R41392 (Sept. 3, 2010), Doc 2010-19735, 2010 TNT 174-27.


END OF FOOTNOTES


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