'Bush-ama' tax cuts: The $2.2 trillion decision

NEW YORK (CNNMoney.com) -- They're often called the "Bush" tax cuts. But at this point they might as well be called the Bush-ama tax cuts.

That's because President Obama has embraced the tax relief measures introduced in 2001 and 2003, proposing they be extended indefinitely for most Americans. If lawmakers do nothing, the measures expire Dec. 31.

The tax cuts lowered income and investment tax rates, boosted the child credit, reduced the estate tax, and narrowed inequalities affecting married taxpayers.

Another reason for the new Bush-ama moniker: Like President Bush, President Obama has not called on Congress to pay for the cost of the tax cuts. In fact, the extension of the cuts is exempt from the new "pay-go" rules that Obama signed into law recently.

Extending the tax cuts for most Americans will increase the federal deficit by an estimated $2.2 trillion over 10 years.

Deficit hawks are uber-frustrated.

"Why do you spend over $2 trillion in your budget -- the most you spend on any single policy item -- on your predecessor's tax policy, which you repeatedly explain is to blame for the deterioration and unsustainability of our nation's fiscal outlook?" Diane Rogers, chief economist for the Concord Coalition, wrote in her blog Economistmom.com.

In a nod to deficit reduction, Obama did propose that lawmakers let the tax cuts expire for high-income households, couples making more than $250,000. Doing so would reduce the deficit by $678 billion from where it would be if the cuts were extended for everyone.

But recently, while he didn't say so explicitly, Obama seemed open to rethinking his campaign promise not to raise taxes on the middle-class. In an interview last month, he said he would weigh recommendations from the bipartisan fiscal commission he created to suggest ways to put the U.S. fiscal house in order.

"We should be able to solve this problem without putting a burden on middle class families," he told CNBC. "Having said that, I'm also going to wait for the fiscal commission to provide me [with] their best recommendations. ... At a certain point, what we've got to do is match up money going out and money coming in."

The commission won't report its recommendations until Dec. 1. In the meantime, it's not clear when Congress will take up the issue of the 2001/2003 tax cuts. One theory is that they'll vote to extend them before their August recess to score political points before the midterm elections in November.

"It would look ugly to go home and campaign for five weeks without having done something for the middle class," said Clint Stretch, managing principal of tax policy at Deloitte Tax LLC.

On the other hand, the legislative agenda is already fairly packed.

Anne Mathias, director of research at Concept Capital's Washington Research Group, is in the camp that believes Congress may not address the issue until December.

It's also not clear yet how long lawmakers might opt to extend the tax cuts. There had been a push by both parties to make them permanent. But some believe extending them for a year or two may be the smartest move given current political and economic constraints.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, proposes that lawmakers extend the tax cuts to the end of 2012, and then use the prospect of making them permanent as a "sweetener" to draw votes for a serious deficit-reduction deal. No deal, no tax cuts.

"This would turn the expiration of the tax cuts at the end of 2012 into a realistic action-forcing hammer ... . Otherwise, the task of stabilizing the debt goes from really hard to nearly impossible," MacGuineas wrote in a blog post.

No matter how long the tax cuts are extended, no one should bank on low rates forever, Stretch cautioned. The country's long-term fiscal condition is too precarious for that.

"No matter what happens, Americans' taxes are going up one way or another. The middle class is going to have to be called on to help reduce the deficit. There's not enough fiscal capacity if we just tax the top 3%," Stretch said.