The tax cuts have proved to be the kryptonite that defeated supercommittee set up to tackle the US's $15tn deficit
In June 2001, president George W Bush signed into law one of the most sweeping changes in US tax history. More than a decade later the cuts are being blamed for the collapse of bipartisan talks aimed at tackling the debt mountain the built up in the decade that followed.
The Bush-era tax cuts are set to expire at the end of next year and have proved to be the kryptonite that defeated a bi-partisan "supercommittee" set up to find ways to tackle the US's $15tn deficit. Republicans dug in against any agreement that did not extend current income-tax rates, Democrats held out for higher rates on families with taxable income over $250,000 a year.
Away from Washington the senior economists – and even some senior Republicans - seem to agree that a compromise was needed and that the tax cuts had done more harm than good.
"This is going to be the big debate for 2012," said Simon Johnson, professor of entrepreneurship at MIT's Sloan School of Management and former chief economist of the International Monetary Fund (IMF).
The tax cuts were "inappropriate, excessive and irresponsible," he said. "Cutting taxes when you are going to war is a pretty silly thing to do," he said. "They were based on extremely optimistic projections that turned out not to be correct. If you don't extend them, the amount of additional cuts you need to make to reach a sustainable debt level are pretty small. If you do extend them, make them permanent, you are looking at a very big adjustment."
In a recent report the non-partisan Center on Budget and Policy Priorities concluded government spending under president Barack Obama was not the prime reason for today's massive deficit. "The fact remains, the economic downturn, president Bush's tax cuts and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years," the center concluded. Read more...