We've already started seeing it.letsgocards89 wrote:So what was the negative effect of the tax cuts?
The Bush tax cuts were very shrewdly done. They masqueraded as a big cut to the middle class, butThe ultimate effect of the tax cuts depends in part on how they are eventually financed. There are two options: reductions in other government programs and increases in other taxes. Borrowing indefinitely, the strategy preferred by many policy-makers, is not a long-term solution. That's because the longer policy-makers wait to pay for the tax cuts — or to give up on the exercise and simply cancel them — the more harm is imposed on the future economy from intervening budget deficits and the more the nation risks a full-blown fiscal crisis.
That danger exists because the deficit-financed tax cuts are, overall, harmful to the country's economic growth. Tax cuts themselves can have a positive direct effect on the economy; for example, they can reduce marginal tax rates and encourage people to work or save more. But tax cuts also increase the budget deficit, which has an adverse effect on economic growth over the long term because it reduces national savings, one of the key determinants of long-term productivity. Given the structure of the 2001 and 2003 tax cuts, various studies suggest that the net effect of these cuts is likely to be negative in the long run.
In addition to the losses from reduced economic growth, many families may suffer from increased interest rates on mortgages, car loans, and credit cards, rates that go up because higher budget deficits compete for the funds available for such lending. Conventional estimates suggest that the deficits associated with the Bush tax cuts could eventually raise long-term interest rates by between 0.5 percent and 1.5 percent, which would raise the annual payment on a $150,000 mortgage by between $500 and $2,000. Households that are net borrowers, which are more likely to have modest incomes, suffer from the increase in interest rates. Households that are net lenders, which tend to be higher income, can benefit.
Ultimately, though, continuing to finance the tax cuts by running up the budget deficit will be unsustainable because even the federal government can't borrow an unlimited amount. In the face of ongoing substantial deficits, financial markets will eventually grow worried about whether the government will be able to repay the borrowed funds
the administration's argument conveniently omits the estate tax (which is progressive and is slated to be eliminated), the corporate tax (which is progressive and was reduced in the tax cuts), and the payroll tax (which is regressive and was not cut). When all federal taxes are considered, the share paid by high-income households will decrease significantly because of the tax cuts.
http://www.brookings.edu/articles/2005/ ... _gale.aspx
