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Senate Passes $70 Billion in Tax Cuts
The big losers have been middle-income singles with no children, who have been left "with very substantial penalties at a time when the population is aging and more and more people are going to be single, not because they don't believe in marriage but because their spouses died," Stretch said.
But tax policy experts warn that neither the winners nor the losers should dwell on their plights for long. The current tax code is simply not sustainable, University of Michigan tax economist Joel B. Slemrod said. Indeed, he said, the biggest policy change over the past six years has been the imbalance between tax collections and federal expenditures. In 2000, federal receipts totaled $2.03 trillion, or 20.9 percent of the gross domestic product, while spending totaled $1.79 trillion, or 18.4 percent of the GDP.
This year, those proportions have flipped. The Congressional Budget Office expects revenue to reach $2.31 trillion, or 17.7 percent of the GDP, while spending will hit $2.65 trillion, 0r 20.3 percent of the GDP.
House Majority Leader John A. Boehner (R-Ohio) said that holding the line on spending while allowing the low tax rates to spur the economy will close the gap. But the spending problem lies not so much with the federal programs at Congress's annual discretion but with entitlement programs such as Medicare and Social Security, which will grow by 23 percent through 2010.
To close the projected budget deficit by 2010, the economy would have to grow at an average annual rate of 4.9 percent -- or 5.5 percent if war costs continue but taper off, according to Leonard E. Burman, a tax policy analyst at the Urban Institute. Such rates have not been seen since the mid-1960s, and most economists see them as impossible, if for no other reason than that the Federal Reserve Board would raise interest rates enough to cool down the growth.
"The economy has been fairly strong over last few years, and that makes it harder to make the case that, in the short run, tax cuts inevitably lead to tax increases or spending cuts," Slemrod said. "But I don't think anybody disagrees there are very large fiscal imbalances in the government. It's very clear we've made no progress. In fact, we've made the problem worse."
The tax code has its own time bombs. If nothing is done, the reach of the alternative minimum tax will grow steadily. By 2013, a parallel income tax structure enacted only to ensure that a few affluent Americans pay their fair share will be collecting more revenue than the traditional tax system. But repealing the AMT would cost the government more than $1 trillion over a decade.
And by the time the next president comes into office in 2009, he or she will be staring at a startling deadline, Jan. 1, 2011, when taxes would rise sharply and suddenly on every American who pays income taxes, has children, is married, owns stocks and bonds, or is expecting a large inheritance.