April 03, 2007

The "Biggest Tax Increase in History"

Congress is off to its Spring Break (ahem, I mean, "district work period") after having passed the House and Senate versions of the fiscal 2008 budget. The right-wing spin machine will not, however, be taking a break, and is still pushing the line that the Democrats' budget resolutions include "the biggest tax increase in history."

CTJ issued a response to these accusations yesterday, Recently Passed Budget Resolutions Do Not Raise Taxes, Despite Accusations of "Biggest Tax Increase in History."

It explains that the budget resolutions do not raise taxes and that what is really irritating the conservatives right now is the budget rule, included in both the House and Senate versions, that requires any new tax breaks be offset (either with new revenues or with decreased spending) so that we aren't increasing federal borrowing to fund new tax breaks.

Because the Republicans, when they ran Congress, chose to make their tax cuts expire at the end of 2010, any extension of the Bush tax breaks will be new tax breaks that fall under this rule (known as the pay-as-you-go, or PAYGO rule).

What's interesting is the fear conservatives seem to have of PAYGO. They obviously know they can't balance the budget while also extending the Bush tax cuts or else they wouldn't care about PAYGO. One has to wonder if this weighs on the minds of some conservative tax cut advocates. Before the House voted on its budget bill, a vote was taken on the Republican budget proposal that exempted tax cut extensions from PAYGO and also assumed totally unrealistic cuts in public services such as Medicare. All but one Democrat voted against the Republican proposal, as did 40 Republicans.

Whether those 40 Republicans were bothered by the idea of increasing the debt to give tax cuts to wealthy families is hard to say, since there were plenty of things in the proposal that would justify a vote against. But it's interesting that the House Republicans couldn't get more members on record as opposing applying PAYGO to tax breaks.

On a side-note, CTJ's executive director Bob McIntyre has done some calculations showing that even if you accept the Republicans' logic, there is no way you can say we're facing the "biggest tax increase in history." McIntyre's calculations show that the Bush tax cuts are equal to about 1.79 percent of U.S. Gross Domestic Product (GDP). During the Vietnam War, taxes increased by about 2.10 percent of GDP. During the Korean War taxes increased by 4.60 percent of GDP and during World War II taxes increased by a whopping 14.80 percent of GDP.

Democrats have said repeatedly that they will not allow all of the Bush tax cuts to expire, and many freshmen Democrats in Congress campaigned on preserving what are known as middle-class tax breaks (the 10 percent rate, the child care credit, etc). But these numbers show that even if Congress went to the unlikely extreme of allowing all of the Bush tax cuts to expire, and if you assume this is a "tax increase" rather than the Republican-enacted law playing itself out, this still could not constitute the biggest tax increase in history.


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