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A host of complex social, historical, political, and economic issues underlie the recent debate (or disagreements) in the U.S. Congress over extending Bush-era tax breaks. In simple terms, the core questions are who pays to maintain civilization and prosperity, what sacrifices are we willing to make, and what are the costs of money that is or is not collected and spent. Related questions concern the role of government versus business in providing services and the effectiveness of tax breaks as economic stimuli.

 The Bush tax cuts date back to 2001 and 2003, following a steady decline in the deficit during the Clinton administration that reportedly left a USD 150 billion surplus. The cuts lowered taxes on income, dividends, and capital gains for everyone, increased credits for education and retirement savings, and led to other reductions.

But then the United States went to war in Afghanistan and Iraq; and then the economy soured. By the time Bush left office, the deficit had increased to a record level of USD 1.2 trillion. Even as early as 2004, an assessment by the Center on Budget and Policy Priorities (CBPP) determined that the tax cuts had “contributed to revenues dropping to the lowest level as a share of the economy since 1950,” and they were “a major contributor to the dramatic shift from large projected surpluses to projected deficits as far as the eye can see.”

Analysts suggest that extending the tax cuts for the richest Americans – those who earn more than USD 250,000 a year – would provide little stimulus to the economic because most of the extra money would go to savings. Extending the tax cuts for Americans in lower income brackets would have a more positive effect, as would tax incentives for business.

Despite the added costs of extending the tax cuts, completely eliminating them at this point might disrupt the economic “recovery.” At some time soon, however, the nation will need to confront the massive deficit and long-term debt. One way or another, we’ll all pay for the economic blunders of this decade.

 

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