The country is less equal today than it was just a decade ago thanks in part to the Bush tax cuts, Treasury Secretary Timothy Geithner said Wednesday.
"[T]he policies put in place by the previous administration, prior to this great recession, have left us with a terrible legacy of challenges," Geithner said during a discussion on fiscal policy at the Washington-based Center for American Progress. "And America is a less equal country today than it was ten years ago, in part because of the tax cuts for the top 2 percent put in place in 2001 and 2003."
The Bush tax cuts, credited with job creation during the George W. Bush administration, are now credited with expanding the nation's ever-increasing national debt. More jobs have been destroyed than the tax cuts could ever claim to have created, and with the economy in a moderate recovery the tax cuts have become less an economic issue than a political one: Most Republicans, hoping to push their supply-side theories, want to extend them in hopes that the rich will spend, invest and create jobs in the process; Democrats, in an attempt to appeal to deficit-conscious voters, want them to expire so that the increased government revenue can be used to pay down the national debt.
Economists and policymakers, while not discounting the positive effects that continued tax cuts can have on the economy, have stressed that the best course would be to allow the cuts to expire. Former Federal Reserve Chairman Alan Greenspan, a noted libertarian who was not opposed to the tax cuts when proposed during his tenure, has advocated that they should be allowed to expire.
The administration, too, is advocating their demise. And on Wednesday, Geithner laid out an argument touching not just on the fiscal and economic benefits -- he touched on the fairness of it all, too.
"The most affluent 400 earners in 2007 -- who earned an average of more than $340 million dollars each that year -- paid only 17 percent of their income in tax, a lower rate than many middle class families," he said. "The legacy of the crisis is millions of unemployed Americans, idled factories, a national debt swollen by eight years of deficit spending and growing income inequality.
"We live in one of the richest economies in the world," the Treasury Secretary continued. "But one in eight Americans is on food stamps today."
Macroeconomic Advisers, an economic consultancy led by former Fed governor Laurence H. Meyer, estimated this week that allowing only those Bush tax cuts for the richest Americans to expire would trim about 0.2 percent from growth over 2011 and 2012.
But while the group warns against letting all of the tax cuts expire, the demise of those benefiting the rich -- though likely to result in a nominal hit to growth -- would be worth it, the group said.
"[G]iven the still tentative recovery... we believe that the consideration of such large tax increases should be delayed until the economy is growing more strongly," the consultancy said in its report. "An intermediate, and safer, near-term strategy is to let expire in 2011 just those provisions affecting high-income individuals while extending the other provisions until they can be considered in the context of a healthier economy."
Geithner argued Wednesday that extending the cuts for the rich "would hurt economic recovery by undermining confidence that we are prepared to make a commitment today to bring down our future deficits.
"Fiscal discipline requires hard choices and we must be prepared to make them," he said. "[T]here is no credible argument to be made that the purpose of government is to borrow from future generations of Americans to finance an extension of tax cuts for the top 2 percent."