Extending Federal Tax Cuts Would Double the Deficit for the Benefit of the Wealthiest

Ten years ago, large federal tax cuts were signed into law by President Bush. Those cuts are now set to expire at the end of 2012. Extending them beyond that date would almost double the size of the federal budget deficit, and in Kentucky close to half of the tax cuts from an extension would go to the highest-earning five percent of taxpayers.

Rather than the more pressing issue of how to grow the economy and create jobs, federal debate has turned to the budget deficit. While there are important long-term concerns about the size of the deficit that relate primarily to need for further health care reform, the three main causes of the deficit over the next ten years are the Bush-era tax cuts, the economic downturn and the wars in Iraq and Afghanistan.[1] Instead of addressing those issues, the deficit debate has focused heavily on possible cuts to federal services and investments, including those that support seniors, the poor and people with disabilities; build needed infrastructure; protect the environment; and promote education and basic research.

If the Bush-era tax cuts are extended in 2013, the richest one percent of Kentuckians would receive an average tax cut of $42,589. By comparison, the bottom three-fifths of taxpayers would get an average tax cut of $425 that year (and the poorest 20 percent of Kentuckians, $50). The cuts would nearly double the size of the federal deficit while delivering 42.5 of the benefits to the highest-earning five percent of Kentuckians.[2] More on who the big winners are from an extension of the tax cuts is in the chart below.

Source: Citizens for Tax Justice

Much is at stake in this summer’s budget debate, which is being linked with a necessary increase in the federal debt ceiling. Kentuckians stand to lose investment in key necessities if major budget cuts come out of the debate, resulting in harm to our economy and quality of life. Critical investments shouldn’t be sacrificed when legitimate revenue options, including letting the tax cuts expire on time, are available.