Yin Urges Congress to Let Bush Tax Cuts Lapse, Address Costs of Entitlement Programs
The Bush administration's tax cuts should expire once the United States reaches a target level of economic growth, Law School professor George Yin told the U.S. Senate Committee on Finance on Thursday during a hearing on middle-income tax relief.
"The country cannot afford them, " Yin testified. "It is essential that this committee and the Congress take action to change the policy path leading to the predicted economic meltdown. An important first step would be to allow all of the Bush administration income tax cuts, including those affecting middle-income taxpayers, to lapse."
From 2003-05, Yin served as chief of staff of the U.S. Congress's Joint Committee on Taxation, one of the most influential tax positions in the country. He now serves as the Edwin S. Cohen Distinguished Professor of Law & Taxation and the Class of 1966 Research Professor at the Law School.
Yin outlined a sharply widening gap between spending and revenue over the next 75 years, due to an aging population, increased health care costs and the country's current policy path. He explained that in addition to being unsustainable, the fiscal gap is imminent.
"Barely two decades from now, the total cost of just Medicare, Medicaid, Social Security and interest on the national debt will total 19.3 percent of GDP, or more than the historical average of total revenues."
"Assuming that that level of revenue were to continue, there would be no money left for national defense, all discretionary non-defense spending, and all other entitlement programs, including federal employee and military retirement programs, food stamps, unemployment compensation and veterans' benefits ... clearly, the nation is on an unsustainable path."
Yin said the projections do not take into account all of the recent events attributable to the financial and housing crisis, as well as the new tax and spending policies advocated by the Obama administration. As a result, "we should expect the actual fiscal outlook to be even bleaker ... perhaps significantly bleaker."
He encouraged congressmen to reform entitlement programs, especially health care expenditures, military commitments and "wasteful" federal spending, and pursue other tax options.
"The country must find ways to make dramatic reductions in spending and to identify additional revenue sources."
Yin pointed to data revealing how the income tax burden dropped more significantly for middle-income and low-income taxpayers than for top bracket taxpayers throughout the 1986-2006 period, particularly during the George W. Bush administration.
Returning all income tax rates to those in force during the Clinton administration would "be fiscally responsible, and be consistent with a principle of 'shared sacrifice' during this very challenging time for the country."
Because Congress may not want to allow the tax cuts to lapse when the economy is so fragile, Yin encouraged congressmen to set a target level of economic growth at which the tax rates would be returned to their former levels. But "the sooner taxes are adjusted to meet the looming fiscal challenge, the more gradual and smoother the adjustment can be, which should reduce the distortionary effect of the adjustment.
"We are beyond the point of being able to kick this problem down the road a little further, " Yin said. Without action "we risk such serious economic disruption in this country as to make recent events look like child's play, and even worse, we risk the possibility of triggering worldwide instability and geopolitical conflict."