Tax Cut Extensions Would Ratchet Up National Debt

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Extending the 2001 and 2003 federal income tax cuts would sharply increase the national debt, even if the extensions were limited to individuals earning below $200,000, according to a new report by the Pew Economic Policy Group.

The current debt-to-gross-domestic-product ratio in the United States is 57 percent, compared to an average of 37 percent over the last 50 years. Making the tax cuts permanent for all taxpayers would cost $3.1 trillion, including interest on the national debt, over 10 years, and cause the national debt-to-GDP ratio to rise to 82 percent.

If the cuts were only extended to individuals earning less than $200,000 and married couples earning less than $250,000, as proposed in the Obama administration’s budget, the 10-year cost of the cuts would be $2.3 trillion, including debt interest, and the debt-to-GDP ratio would increase to 78 percent. Both of these ratios would be the highest since 1950, when the U.S. was still paying off debts incurred during World War II.

Extending the tax cuts for just two years to all taxpayers would cost $558 billion (including debt interest) and would increase the debt to 70 percent of GDP by 2020. This figure is only 2 percent more than if the cuts were allowed to expire at the end of 2010.

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