President Obama has repeatedly said he wants to let the Bush-era tax cuts for couples earning more than $250,000 a year ($200,000 for individuals) expire at the end of the year. Aside from the fairness issue of the proposal, he often makes the case that the revenue generated by the tax hike would help put the country on a more solid financial ground. But as I have said in the past, even in the best-case scenario, where the president manages to raise as much money as he hopes from the expiration of these taxes, this focus on tax revenue misses the point: We have spending problem and this won’t address it.
Using data from the president’s FY2013 budget, this chart places the revenue effects of this expiration into proper perspective. According to Office of Management and Budget data, letting the income-tax measures expire for top earners will raise revenue by a projected $850 billion over the next 10 years. With the restoration of the estate, gift, and generational-skipping transfer tax parameters (also part of the Bush-tax cuts that affect high earners), revenue is projected to increase about $967 billion over the next 10 years.
This additional revenue sounds like a lot of money, but let’s put this number into perspective by looking at how much the federal government will be spending over the course of the next 10 years. Drawing on the president’s own data, the chart above shows that the government will spend more than $46.9 trillion. Even without interest payments, spending will still amount to $41.2 trillion. Moreover, the total interest paid on the debt will reach $5.7 trillion. This cumulative amount is growing fast. Further, taking the president’s data at face value, the cumulative deficit over the period is still $6.7 trillion.
The bottom line is that even if the president manages to collect an additional $967 billion by letting some of the Bush-era tax cuts expire, which I doubt it will, Washington still has a spending problem.