- Last Updated on Wednesday, 06 October 2010 00:00
- Published on Wednesday, 06 October 2010 00:00
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And no matter what you call it, any move to take money out of the economy, isn’t going to help matters.
Back in 2001 and 2003, President George W. Bush proposed an across the board series of tax reductions. These included reductions in the income tax rate, taxes on dividends, taxes on capital gains, and taxes on married couples. The latter, which benefited more than just high earners was a cut in the despised “marriage tax.”
They also included new tax credits for savings intended for education and retirement. The president and many Republicans in Congress made the case that the economy was starting to slow down after the shock of Sept. 11 and we needed the tax cuts to stave off a recession. Further, since, they were temporary, their impact on the deficit, while significant, wasn’t necessarily permanent. They came with an expiration date of December 2010.
Democrats, then out of power, argued that cutting taxes on this magnitude, particularly after finally balancing the budget during the Clinton Administration, was fiscally irresponsible. Further, many saw these tax cuts as benefiting higher earners, a generalization that was only partially true. Lower income brackets benefited considerably from several of the tax reductions. However, the Democrats weren’t eager to be blamed for the next recession either and so the tax bills passed without much active opposition.
At the time, it’s highly unlikely that anyone thought that dealing with the question of extending or letting the cuts expire would be as big a political issue as it’s turned out to be. And it probably wouldn’t have been if these tax cuts, without offsetting cuts in expenditure, were the only fiscally questionable act of the last decade. But as it turned out, it was the first of many and that’s why in 2010 the future of the tax cuts has been called a “fiscal time bomb.”
When it comes to federal spending the first decade of the 21st century can be described as one of the most fiscally irresponsible periods in our nation’s history. Oh, and if you’re a Republican, don’t be so quick to blame the Democrats, and if you’re a Democrat, be careful not to put too much blame on the GOP. There is plenty of blame to go around.
The Bush Administration and the Republican Congress didn’t seem any more concerned about deficit spending than the Democrats who followed them. Under George Bush and the Republican Congress we racked up $4 trillion in our national debt. That’s a post World War II record. Now, you can say, there was a war, and the answer, was yes there was. But no one had the political nerve to either dramatically cut spending elsewhere, or do what some suggested and that was to create a World War II or Korea era “war tax.” Fighting a war on a credit card has never been a good idea.
With the coming of the Democrats in Congress and the election of President Obama in 2008 the situation didn’t improve in the slightest. In fact, it only got worse. There was a recession, as well as an escalation in one of our two overseas wars, and with the stimulus, and other spending programs, the gap between what we brought in as revenue and what we spend just got wider.
So, enter the expiration of the Bush tax cuts, the coming election, a continuing joblessness problem, and a deficit which has finally, after years of yawning on the part of the public, become an issue. Democrats, with some exceptions, want to repeal the tax cuts. They claim they are just beneficial to high earners. The Republicans, by contrast, contend that letting the cuts expire is the same as a tax increase and they think that’s a bad idea in a recession.
Some in the GOP have suggested that in order to offset the fiscal impact of extending the cuts that the difference can be made up by not spending the outstanding balance on the president’s “Stimulus Program.” Though there aren’t precise numbers, probably about $400 billion of the program hasn’t been obligated. This money, if diverted from the stimulus spending could be used to pay for the continuation of the tax cuts. Others just want to let the cuts expire with no offset. Either way, whether the stimulus is the offset or not, it’s borrowed money.
The problem and the reason that it’s called a time bomb is that a decision has to be made soon. The Democrats are decisively exposed in the midterm elections, and voters tend to favor keeping the tax cuts. The Democrats in Congress, mostly because they were afraid to go on record as voting for a “tax increase” left the debate until the lame duck session after the election. Talk about wimpy. However, the public is still debating the issue and arguably, putting off a decision, has only made the future of the cuts a bigger issue.
At this point, probably the only course that makes any sense is to leave the tax cuts in place. We have to cut spending. That’s a given. And at the same time, we have no hope of increasing the GDP, and therefore potential federal revenue, if the economy continues in a slump. And no matter what you call it, any move to take money out of the economy, by a defacto tax increase, isn’t going to help matters. So, like them or not, these long ago tax cuts probably need to stay in place.
You may reach David Kerr