About Those Bush-Era Tax Cuts…
Let’s be reasonable, you and I.
I’ll set the stage: January 1, 2013 is the date the United States falls off the fiscal cliff. If we do, it’ll be a free fall. Our economy is already hovering above ‘stall speed’, and we are vulnerable to a new recession. The fiscal cliff must be avoided. And it can be.
There’s one issue with the fiscal cliff that I’d like to highlight here: a third of “Taxmaggedon’s” (which is, itself, more than half of the fiscal cliff) tax increases come from the expiration of the Bush-era tax cuts. Taxmaggedon is an economic shock wave that our fragile economy cannot withstand. Easy to fix, right? Well… wrong. Here’s why–
The House has passed legislation that extends all the Bush-era tax cuts through 2013. The Senate is a different story. Republicans and Democrats are at a stalemate. Democrats don’t want to extend the tax cuts for the top two tax brackets (“those making over 250k/year”); Republicans want to extend the tax cuts for all tax brackets. Unfortunately, and at our expense (the American people), the Bush-era tax cuts have become an extremely polarized political issue. But, never fear. There is a way to make sense of it all.
Senator Patty Murray (D-WA) has said Democrats are prepared to go over the fiscal cliff if Republicans don’t give on the two upper income tax brackets. Okay–deep breath. It must be a big deal, right?
Hold that breath. There’s more: President Obama has echoed that kind of political positioning, as a Politico headline today (September 9, 2012) reveals: Obama will work with Republicans if they agree to raise taxes.
So, give on the upper income tax brackets. Do it. Why not? The answer is part of the reason for the stalemate. For starters, the President himself once said–in August 2009–that “…You don’t raise taxes in a recession…” We may not technically be in a recession anymore, but we’re pretty darn close. Another is something Ernst and Young LLP pointed out: raising taxes right now, like the President wants to do, would kill at least 710,000 jobs (for perspective, 96,000 jobs were created in August)–among other effects. Our anemic recovery is enough reason alone to not go down that road. But hey, are you still holding that breath? Let it out, slowly.
Back to that stalemate in the Senate. Democrats and Republicans must really have different proposals… I mean, why else would they do this? (Hint: election season.) But, beyond that, it’s a matter of ideology. Democrats are convinced “the rich” don’t pay their “fair share”. That’s false, period. Republicans disagree (obviously).
At any rate, how big is the difference between the proposals by the Senate Democrats and the Senate Republicans (where it all hangs in the balance)? I think you should take another deep breath. It’ll be the last one I ask of you. Ready? $28 billion. I know, I know. $28 billion. (That’s the same amount of money GM owes American taxpayers after its bailout–a fate [bankruptcy] it’s getting ready to see again.) Yes, more than half of the fiscal cliff–and the future of the U.S. economy–has been subjected to Democratic campaign rhetoric over a blip of federal spending (keep reading).
The Joint Committee on Taxation (which is comprised of the Senate Finance Committee & the House Committee on Ways and Means) provided an analyses of the two Senate proposals. Guess what? The Democratic plan, relative to the CBO baseline that assumes all taxes go up, results in $272 billion in less revenue in 2013. And the Republican plan? That results in $300 billion in less revenue in 2013. You’re probably laughing right now after reading that. Me too. Serious face, though. It gets better. Take it away, Orrin Hatch (R-Utah): “To put the difference in context, the $28 billion difference amounts to less than 3 days of federal government spending…” HAHA! 3 days! All of this–for THREE DAYS! Don’t laugh. It’s a big deal. This is ridiculous.
And as an aside (but still kind of relevant), opponents of the Republican plan often cite the ghastly figure “~$800 billion” to say that over the next decade, the Republican plan increases the deficit by $800 billion (as a result of the federal government forgoing such revenue). How noble of those critics to care about the deficit, now, when it is politically “convenient”. Don’t fret, though. There’s an answer to that, too. Thankfully–the Democratic and Republican plans both seek to extend the Bush-era tax cuts for one year (which means that $800 billion can be thrown in the trash where it belongs). That gives lawmakers enough time (remember, it’s election season now, not later) to reform the highly regressive tax code we have now into a pro-growth, simpler tax code.
Go back to when I said we should be reasonable. Let’s be reasonable. Democrats and Republicans are so close; just $28 billion away from singing Kumbayah together (after which, of course, they’ll resume their work on the rest of the fiscal cliff). It may sound like a Grand Canyon-esque gap, but I assure you, it’s not. Recycled talking points are what separates us from moving away from the fiscal cliff, at least in part. $28 billion is pretty good for inside-the-beltway standards–those are grounds for a compromise. So when you hear President Obama or Democratic Congressmenandwomen speak about Republican “obstructionism”, think of this post. Is $28 billion “more” an obstruction?–especially when the ramifications are so real and far-reaching? Is it reasonable for President Obama to avoid working with Republicans over $28 billion? Will ending the Bush-era tax cuts for the top two income tax brackets actually do anything to manage our dismal fiscal future?
I hope the answers to each of those questions have been made clear.