Opinion: What's an 'Affordable' Tax Cut?

(Sept. 14) -- In making his case to end Bush-era tax cuts on the rich, President Barack Obama has said repeatedly that it's a question of affordability.

Last week in Cleveland, for example, the president said, "This isn't to punish folks who are better off -- God bless them -- it is because we can't afford the $700 billion price tag."

This week in Virginia, he said it again: "We just can't afford it."

Chart showing the cost of tax cuts through the years.

Source: U.S. Department of Treasury, White House statements.

This chart shows what it would cost the U.S. Treasury to extend the Bush tax cuts on the middle class and the rich, and the cost of Obama's proposed "fix" to the Alternative Minimum Tax.

With the deficit expected to top $1 trillion again next year, and total more than $6 trillion over the next decade, it's not exactly a difficult argument to make. The country can't hardly afford anything these days, at least not if anyone wants to get serious about deficit reduction.

But apparently, affordability is in the eye of the beholder.

After all, extending the Bush tax cuts for the middle class would cost more than $3 trillion over the next 10 years, according to the Treasury Department, compared with the $700 billion price tag for extending tax cuts for the well-off. In other words, the middle class tax cuts are more than four times as unaffordable, by this logic, as the tax cuts on the rich.

Meantime, another tax plan -- indexing the Alternative Minimum Tax for inflation -- would cost more than $658 billion over the next decade.

Yet no one is saying that we can't afford these. Not the Democrats fixated on ending tax cuts for the rich, nor the deficit hawk Republicans trying to block any new spending programs out of concerns about the deficit.

Well, actually at least one person is. Former Obama budget director Peter Orszag noted in a recent New York Times column that because of the country's dire financial situation, extending any of the Bush tax cuts is a bad idea because it would "lock us into a budget scenario out of which there are few politically plausible routes of escape."

Sponsored Links

His compromise solution. Keep all the Bush tax cuts for just two more years while the economy improves, and then "end them for good in 2013." Not many people have taken up Orszag's proposal, but from a "what we can afford" point of view, he's at least being more honest and consistent than anyone else in Washington.

Then again, this is an election year. So when Washington politicians talk about "what we can afford," they no doubt mean what they can afford politically, not what the country can afford fiscally.