Cost of extending the 2001 and 2003 tax cuts

A report by The Pew Economic Policy Group - Decision Time: The Fiscal Effects of Extending the 2001 and 2003 Tax Cuts, concludes that even extending the cuts for individuals with less than $250,000 of income (MFJ) or $200,000 (all others) would have long-term adverse effects on the deficit, debt and economy. They conclude that:

• "Making the tax cuts permanent for all taxpayers, regardless of income, would
  cost $3.1 trillion over the next 10 years and inflate the national debt to 82 percent
  of GDP."
• "Limiting the extension to individuals making less than $200,000 and married
  couples earning less than $250,000 would cost about $2.3 trillion in the next
  decade. Absent any offsets, this proposal would inflate the national debt to
  78 percent of GDP by 2020."
• "Extending the tax cuts for all taxpayers for only two years ... would cost $558 billion over the next 10 years and increase the debt to 70 percent of GDP by the end of the decade."
• "If the tax cuts are allowed to expire at the end of 2010, the debt-to-GDP ratio would rise, reaching 68 percent by 2020."

The report also observes that today the average debt-to-GDP ration is 57% and has averaged about 37% for the past 50 years.

The full report has nice review of the 2001 and 2003 tax cuts and their history.

A few things to bear in mind:

• The tax cuts automatically expire at the end of 2010. To keep any of them will require action by a majority of Congress and President Obama. It is already July 2010 and Congress is still trying to extend most of the temporary provisions that expired at 12/31/09!
• While dollar-wise, the tax cuts affecting higher income individuals, that population is only about 3% (a bit less) of individuals who file.
• There are a few other tax cuts from later tax bills that also expire after 2010, such as most of the American Recovery and Reinvestment Act provisions, and even a few others, such as one allowing certain musical works and copyrights a special depreciation period (IRC Section 167(g)(8) added by PL 109-222, the Tax Increase Prevention and Reconciliation Act of 2005.

Years ago, I thought Congress and the President would take advantage of the expiring tax cuts situation to work on some significant reforms to the income tax, such as broadening the base and lowering the rates. They would realize that they could not afford to keep the tax cuts as permanent provisions so would "sell" a greatly modified tax system as a replacement. Despite some talk of reform, the benefit of the long time period between 2003 and 2011 was not used wisely to address fundamental reform/improvement of our overly complex tax system and it just seems to get more complex with every new tax bill and those tax bills keep coming.

What do you think?