Friday, July 30, 2010

inertia or the cost of doing nothing

There is a new drama shaping up in Washington DC: the Bush Tax Cuts expire at the stroke of midnight on New Year's Eve. Obama campaigned on keeping those tax cuts in place for those earning over $250,000 a year and letting those tax cuts for upper earners expire (and default back to the Clinton era tax rates for those earning $250,000 and above).

Both parties smell a political opportunity. Democrats want to paint the GOP as the party of the rich, saying that Republicans voted down extending unemployment benefits and tax breaks for small businesses, but will go to the wall for those earning over $250,000. Republicans think they can pain the Democrats as the party of tax increases, describing the expiration of the Bush Tax Cuts as the biggest tax increase in history. Oh and raising taxes in the midst of the Great Recession is a bad idea.

Of course there are problems with both sides. The GOP set up the 10 year sunset provision in the Bush Tax Cuts because they passed it through Reconciliation in the Senate, which they said was a satanic ritual when it came to Democrats passing Health Care Reform. There are a great number of small business whose taxes pass through to their owners and therefore these folks are many of the $250,000+ crowd. But that doesn't mean that these people aren't wealthy or that it will automatically hurt non-wealthy people to restore the tax levels to the Clinton era. And a good hunk of the national debt is due to those Bush Tax Cuts.

Let's look again at this chart, which I pulled from the Wall Street Journal, that commie rag. It appears that under the Obama proposal (which by no means will be the final bill that would get voted on by Congress) every income bracket does better under his proposal that simply continuing the Bush Tax Cuts.

Deadlines tend to sharpen the mind in most fields, but they also create rushed jobs? Ideally, Congress should work to redo the tax code like they did in 1986, when they eliminated lots of loopholes while lowering taxes. There are all kinds of boondoggles in there that need to go. And there should be room for creative ideas. What about getting rid of payroll taxes and raising overall income taxes? Is there a better way to arrive at how wealthy someone is than the income they make (especially for higher earners, who get things like stocks, or trust fund babies)? Would a sin tax that includes Marijuana make sense? A National Sales Tax, as Mike Huckabee suggested?

Sadly, the most likely option in this election year where Democrats know that Republicans will gain some seats in Congress and might even take over the House is likely kicking the can down the road and waiting on the commission on high to tell Congress what to do. But that would be a blown opportunity. Democrats should seize the fleeting moment when they have a 60/40 edge in both chambers to pass some tax policy that reflects who they are, and not just try to deflect criticism that will come regardless of what they do. And Republicans should hold Democrats feet to the fire with the warning that they better pass something they like enough before the end of the year, or a very different tax bill will come through Congress next spring.

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