The Debate….Bush tax cuts come now or are (forced) later….When the new Republican House majority arrives in January, it will make its first order of business a retroactive tax cut. Republicans would take front stage from that point on.
Posted By thestatedtruth.com on November 30, 2010
Democrats have left themselves in a tough spot on the Bush tax cuts. After delaying the issue until after the election and then being trounced in that election, they find themselves with little leverage.
If they cannot come up with a plan that can win 60 votes in the Senate, which means at least two Republican votes, Republicans can filibuster any bill. All of the tax cuts would then expire on Dec. 31. When the new Republican House majority arrives in January, it will be able to make its first order of business a retroactive tax cut — forcing President Obama and Senate Democrats to choose between a purely Republican plan and an across-the-board tax increase.
So the big question is whether Democratic leaders can come up with any compromise that centrist Democrats and a couple of Republican senators — Scott Brown, who represents liberal Massachusetts? George Voinovich of Ohio, who is retiring? — are willing to accept.
Much of the recent commentary about the tax cuts has skipped over this political reality. It’s instead focused on how tough the Democrats should be and whether they should insist on the expiration of all the Bush tax cuts on income above $250,000 a year. But that’s no longer one of their options. Unless they believe they will benefit more than Republicans from a standoff in which taxes go up, which is hard to believe with a Democrat in the White House, their only choice now is among various versions of retreat.
A small group of Obama administration officials and lawmakers from each party will be negotiating over the next few days, and two possibilities are getting the most attention.
The first is a millionaire’s tax, in which the Bush tax cuts would be extended only on income below $1 million. This would raise only half as much as Mr. Obama’s proposal — allowing the cuts to expire on all income above $250,000 — but it would still eliminate roughly 8 percent of the medium-term budget deficit. A millionaire’s tax would also mean that the tax code would again begin to distinguish between the merely affluent and the truly wealthy, as was the case decades ago.
The second, more likely option is to extend all the tax cuts — and to package them with other tax cuts and spending likely to do more to help the economy than the Bush tax cuts. (Remember, after President George W. Bush signed the cuts in 2001, the economy lost jobs for the next two years, and economic growth during his presidency was mediocre.) These other measures could include a tax cut for businesses that added workers, an across-the-board payroll tax cut and an extension of unemployment benefits.
Combining the two ideas — using the revenue from the millionaire’s tax to pay for job creation programs — may also be possible. Senator Mark Warner, a moderate Virginia Democrat, has been pushing a similar idea.
Today, the economy looks striking similar to the way it did at the start of the year, with the latest numbers again pointing to a recovery. Retail sales over Thanksgiving weekend were strong. The last jobs report showed more hiring than expected. Yet the outlook remains highly uncertain, partly because of the debt troubles in Europe.
The great historical lesson of financial crises is they tend to have bigger, longer-lasting effects than policy makers think. Congress and the White House now have a chance to take out an insurance policy against the risk that the recovery will fade in coming months, just as it did over the summer. Because the Bush tax cuts will expire unless new legislation is enacted, they offer a chance to get that insurance policy through Congress.
More at The NewYork Times at:http://www.nytimes.com/2010/12/01/business/economy/01leonhardt.html?hp
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