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A Project of The Annenberg Public Policy Center

Howard Dean Overstates Cost of Tax Cuts

Howard Dean falsely claimed that "60 percent of the deficit is due to the Bush tax cuts." Last year, the nonpartisan Congressional Budget Office said that allowing the tax cuts to expire at the end of 2010 would decrease the deficit from $1.3 trillion in 2010 to $1.07 trillion in 2011. That's a 17.7 percent drop. It's sizable. But it's not 60 percent.

Dean, the former Vermont governor and Democratic National Committee chairman, made his claim on CBS' "Face the Nation" on Aug. 7:

Dean, Aug. 7: Sixty percent of the deficit is due to the Bush tax cuts. That's CBO saying that, not me.

But the CBO didn't say that. When we contacted Dean's office, we were told Dean was referring to a report by the liberal-leaning Center on Budget and Policy Priorities. CBPP based its analysis on CBO estimates. And Dean was talking about the tax cuts' projected impact on the deficit by 2019, not now. Plus, that's only if the tax cuts are fully extended that far into the future. Right now, the tax cuts are set to expire at the end of 2012. The CBPP report assumes that both houses of Congress will vote to extend them and Obama will sign those extensions into law. It's certainly possible that that will happen, but who knows? Lawmakers will be wrangling over the tax cuts as the 2012 election nears, and as another debt ceiling debate looms in 2013.

Assuming the Bush tax cuts continue through 2019, CBPP estimates that the Bush tax cuts plus associated debt-service costs for those tax cuts would make up 55.6 percent of the deficit in 2019. (See Table 1.) That's close to Dean's 60 percent claim. Over the 2009-2019 period, CBPP estimates the tax cuts would cost $3.7 trillion plus $1.7 trillion in debt-service costs for a total of $5.4 trillion. That would be 43 percent of CBPP's estimated cumulative deficit for the decade of $12.6 trillion.

It's true that the Bush tax cuts increased the deficit and will continue to do so if they are extended beyond 2012. They represent a loss of revenue for the federal government. The Joint Committee on Taxation estimated it would cost $363.5 billion to extend the Bush tax cuts for two years through Dec. 31, 2012.

As Congress and the president were debating whether to continue those tax cuts late last year, CBO Director Douglas W. Elmendorf testified that extending them — along with adjusting the alternative minimum tax for inflation and reinstating the estate tax at 2009 rates — would "roughly double" the deficit in 2020. But Democrats have long supported extending AMT relief, and President Obama has long said he is in favor of continuing the Bush tax cuts for families earning less than $250,000 a year. Limiting an extension to just lower-income individuals, Elmendorf said, would increase the deficit by "roughly three-quarters to four-fifths as much."

CBO, Sept. 28, 2010: A permanent extension of all of those tax cuts without future increases in taxes or reductions in federal spending would roughly double the projected budget deficit in 2020; a permanent extension of those cuts except for certain provisions that would apply only to high-income taxpayers would increase the budget deficit by roughly three-quarters to four-fifths as much. As a result, if policymakers then wanted to balance the budget in 2020, the required increases in taxes or reductions in spending would amount to a substantial share of the budget — and without significant changes of that sort, federal debt would be on an unsustainable path that would ultimately reduce income.

A chart accompanying Elmendorf's congressional testimony shows the 2020 projected deficit going from $0.7 trillion to $1.4 trillion with the tax cuts extended and the AMT indexed to inflation.

But we took Dean's remarks to be about the present — not a decade-away projection.

— Lori Robertson