With economic malaise unaccountably resistant to President Obama’s entreaties and mountains of government cash, and with the Democrats at the edge of an electoral abyss, Washington is wondering what to do with the Bush tax cuts.
The Bush tax cuts are set to expire at the end of the year. The received wisdom of Barack Obama and the Democrats is that those tax cuts should not have been enacted in the first place, and that they should be allowed to lapse, the better to provide more revenue for the government to spend for our own good. Perhaps out of noblesse oblige, President Obama will allow some tax cuts to continue, though only for people who are not too “rich.”
However, a number of surprising people, since they are Democrats, are wondering about the relationship between economic growth and low tax rates, a feature of Reagan-era supply-side economics which were the basis of the Bush tax cuts. More importantly, they are wondering what the effects would be of suddenly raising taxes, i.e. eliminating those tax cuts, during a recession.
The answer seems to be more economic recession, unhappy tax payers, and a second electoral bloodbath in 2012. Thus, in order to avoid the spectacle of “I, Sarah Palin, do solemnly swear…,” a few Democrats are looking at “temporarily” extending those tax cuts, even for the “rich.” “Trickledown economics” is still a buzz slogan for the Democrats. But trickledown government does not seem to be working.
The stakes could not be greater. According to the Cyber News Service:
“According to the Tax Foundation, a taxpayer advocacy group, the impact of letting the cuts lapse completely would mean the standard deduction for married couples would no longer be double what it is for single filers.
“Further, the 10 percent tax bracket will increase to 15 percent, according to the foundation. The child tax credit will be cut in half from $1,000 to $500. The capital gains rate would increase from 15 percent to 20 percent.
“The 25 percent tax rate would increase to 28 percent, while the current 35 percent rate would increase to 39.6 percent. Meanwhile, the estate tax would be restored for high value estates.”
The question is, will enough Democrats get on board in time for an extension to pass before 2011? And will President Obama go along with it?
It would be a hard thing for many liberal Democrats to swallow the idea that George W. Bush was right all along about the economy. Obama has already implicitly acknowledged that Bush was right about Iraq, even while taking credit for the victory that Bush pushed and he opposed. So it would not be too great a leap for him to also bow to reality when it comes to taxes and economic recovery.
The alternative is an economy in freefall in 2011 and tea partiers marching on Washington that will make the health care reform protests seem like a church picnic. At a certain point, ideology must yield to practicality.
‘Reasonable Chance’ to Temporarily Extend Bush Tax Cuts, Set to Expire in January, Hatch Says, Fred Lucas, Cyber News Service, August 3rd, 2010