For practical and political reasons, the Obama administration has decided to allow Bush-era tax cuts for the middle class to stay in place. Politically, the president campaigned on a promise of not increasing taxes for the middle class. Practically, middle-class and working-class Americans will spend more of that money rather than saving it, which will help a weak economy.
However, to address the deficit, Obama wants to allow the tax cuts on the richest Americans to expire. Last week, Treasury Secretary Tim Geithner confirmed the Obama administration’s intention to allow steep tax cuts for the rich to expire on Jan. 1, 2011, as the law requires. “We believe it is appropriate to let those tax cuts that go to the most fortunate expire,” Geithner told a gathering of journalists last week.
Oddly, Republicans, joined by a small group of Democrats, are arguing against allowing the tax cuts to lapse. Even though the GOP has made the size of the deficit one of their premier issues for the mid-term elections, they don’t want to increase revenue by hiking taxes on the richest Americans. It’s more rank Republican hypocrisy.
As I’ve said before, this is elementary-school arithmetic, folks. Let’s say you’ve decided you could afford to start working part-time, but you’ve encountered an emergency — say, you need a new car — and suddenly, you’re head over heels in debt. You need to do two things: Cut spending and go back to work fulltime, i.e. increase revenues. Simple as that.
You can’t any more repeal the rules of arithmetic — two plus two still equals four — any more than you can repeal the laws of physics.
From the WSJ:
Democrats are aiming to push legislation extending Bush-era middle-class tax cuts ahead of midterm elections. But with Republicans and several Democrats advocating a similar extension for high-earners, too, prospects for passage before November balloting appear uncertain.
So Democrats already are planning to turn the issue into a campaign theme—by blaming Republicans if the legislation fails. The looming battle over taxes and spending is likely to be a dominant one in Washington, stretching into next year, as the government begins to address chronic budget deficits.
“The Senate will move first, and it will be a test to see whether Republicans filibuster” to block the bill in a bid to also win tax cuts for higher earners, said Rep. Chris Van Hollen of Maryland, head of the House Democrats’ re-election effort.
“If you can’t get it out of the Senate, then you take it to the election,” Mr. Van Hollen said in a recent interview. “You say to the American people that Republicans want to continue to hold middle-class tax relief hostage for an extension of tax breaks for [the well-to-do]. That will be the debate.”
A spokesman for Senate Majority Leader Harry Reid confirmed on Sunday that the Nevada Democrat “intends to take a bill [to extend middle-class tax cuts] to the floor in September.” . . .
About 2% of U.S. households earn more than $250,000 annually, according to recent statistics. Still, the Senate-first strategy feeds into one of the Democrats’ broader themes—that Republicans are clinging to policies of former President George W. Bush.
The strategy also could mute Republican criticism that Democrats are doing nothing to address the tax cuts’ expiration. And by having the Senate move first, it might allow vulnerable House Democrats to avoid politically risky votes to raise taxes on higher earners, or add to future budget deficits.
Rebuplicans argue that increasing taxes on the wealthy kills job creation, but there is absolutely no evidence that’s so. Raising taxes on the wealthiest Americans would hike their taxes to the same rate which they paid under Bill Clinton, a time of no budget deficit and widespread prosperity. By contrast, George Bush’s tax cuts helped produce a mind-boggling budget deficit while creating NO jobs. The years between 1999 and 2008 were what economists are calling a “lost decade,” in which the net number of jobs created was ZERO.
This is a battle Democrats should take up with relish,.
A chart from the Wall Street Journal shows how various income brackets would be affected if the tax cuts were allowed to expire: