This is What Happens When You Extend Unpaid-For Tax Cuts

'Martha's polishing the brass on the titanic.  It's all going down man...'

Yesterday, the Congressional Budget Office (CBO) – Congress' nonpartisan fiscal scorekeeper – released their revised budget and economic outlook for fiscal year (FY) 2011 through FY 2021. The most newsworthy element of the new estimates is this year's revised deficit projection. As most media outlets noted, Uncle Sam's predicted budgetary shortfall for 2011 went from just over $1 trillion to $1.5 trillion. Extension of the unpaid-for Bush tax cuts comprises almost the entire additional shortfall.

This shouldn't be shocking, but many conservatives and fiscal hawks are likely to try to use the new number to argue ever more forcefully for immediate and severe austerity measures – mainly consisting of deep cuts in non-security discretionary funds. As James Horney of the Center on Budget and Policy Priorities (CBPP) points out:

While CBO’s projection of the 2011 deficit is higher than its projection last August, this change does not reflect “runaway spending.” The $445 billion cost in 2011 of December’s bipartisan tax cut-unemployment insurance deal and small business legislation enacted in September account for more than the entire $414 billion increase in CBO’s 2011 deficit projection. These two bills consisted overwhelmingly of tax cuts; spending provisions account for only $37 billion (9 percent) of their cost.

Indeed, extension of the Bush tax cuts, along with several other extended tax provisions, account for $354 billion of the 2011 deficit increase. This includes $98 billion for the Bush tax cuts themselves; $86 billion for the alternative minimum tax (AMT) patch; $84 billion for the payroll tax holiday; $55 billion for business to advance depreciation on capital assets; $5 billion for reducing the estate tax; and $26 billion for extension of other business tax breaks, including the R&D and ethanol credit.

And what was that spending provision of $37 billion for? Well, $35 billion of it was the cost of extending unemployment benefits to the scores of individuals struggling long-term to find a job in this country.

Taking into account the makeup of the increase in the 2011 deficit, and while it's overly simplistic to argue that our country has either a spending or a revenue problem, I find it amazing that conservatives still argue the former. Given that revenues are at historic lows due to the Great Recession and tax rates are at their lowest since the Truman administration, fiscal hawks shouldn't be able to keep a straight face when the words "spending problem" roll out of their mouths.

Image by Flickr user RambergMediaImages used under a Creative Commons license.

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