The debate about the Bush tax cuts is pretty absurd, when you think about it.
In 2001 and 2003, when the federal deficit hit a record $374 billion (!), Congress voted for the tax cuts to be temporary. In 2010, with the deficit over $1.3 trillion for the second consecutive year, Congress is only debating options to make the tax cuts permanent. Only in Washington...
To my knowledge, there is only one Democratic Senate bill on the Bush tax cuts. That bill comes from Sen. Max Baucus and it permanently extends 80 percent of the tax cuts forever. In the next ten years, this will cost us somewhere between $2.3 trillion and $3 trillion in lost revenue, or more than three Recovery Acts.
And that's the financially prudent option. The Republican bill from Sen. Mitch McConnell's office makes the whole dang thing permanent (and goes even further to slash the estate tax) at the cost of nearly $4 trillion, according to some estimates.
That is the state of our tax cut debate. Do we want to extend this entire fiscal time bomb, or only the vast majority of it?
The political solution seems self-evident. We cannot extend these tax cuts forever, but neither can we dropkick the average consumer with a $1000 tax increase next year by letting it expire. So extend the tax cuts for few years only and then make some overdue reforms to the tax code.
Should we extend them for the rich, too? From an accounting standpoint, the answer is not particularly meaningful. Raising taxes to their 1999 levels on the top few percentiles alone will save us about $65 billion in revenues in the next two years (compared with the $700 billion figure you see for the decade-long cost of keeping the rich tax cuts). Sixty-five billion dollars is real money, but it's a droplet in our debt projections -- about 0.7 percent the $9 trillion CBO expects the U.S. to rack up this decade.
Bottom line: any talk about permanence is fairly crazy at this point. Don't pass either of these bills. Extend, briefly, and then reform.