I am encouraged to see signs that prominent Democrats are openly contemplating letting all of Bush’s tax cuts expire rather than cutting a deal with the Republicans during the lame duck session between November’s election and the new Congress that will be seated in early January.
When we discuss the Bush tax cuts, we tend to focus only on the cuts for the rich because those have the most impact on the deficit and are the least sensible and most unnecessary. Focusing on the rich also enables us to have some small prayer of raising revenue in our current political environment. Yet, the Democrats cannot even unite on raising taxes on those making $250,000 a year.
It will be far easier to let all the Bush tax cuts lapse. This can be done easily. All Obama has to do is refuse to sign any deal or any short-term extension during the lame-duck. On the first of January 2013, the government would instantly get a $3.7 trillion boost on their books. This would free Congress up to redo the tax code in an more equitable way. In the worst case scenario, Romney would be in charge of this and would enjoy majorities in both houses. He might be able to use the budget reconciliation process to enact another Bush-like temporary (decade-long) tax cut, but it’s unlikely that that would would work with the budget deficits we’re facing. Bush had surpluses and still needed Dick Cheney to break the tie in the Senate for both his 2001 and 2003 tax cuts.
However, if, as now seems likely, Obama wins reelection, he will be in a great position to influence the new tax code. If Congress does nothing, everyone who pays taxes will see their taxes go up. Having won a second term, the president will have at least some initial political clout. And we’ve seen recently that the GOP will fold when put in a bad position, like letting student loan rates double or letting the payroll tax holiday run out.
It will be easier to make a final decision after we see the election results. If Romney wins, Obama may explore a deal, but it would have to be a very good one to make it worth his while to extend any part of the Bush tax cuts. If he wins, he’ll want to see how he did in the Senate and the House. Why deal with Boehner’s House in a lame-duck when he can deal with Pelosi’s House in the new year? However, the opposite could be true of Reid’s Senate in the lame-duck versus McConnell’s Senate in the new year.
Obama will also have to consider the risk of economic damage if Congress can’t reach some kind of short-term deal. A large, sudden tax hike on everyone is not what is called-for by our economic times. If it isn’t fixed quickly in the new year, it could send the economy back to recession and sour the beginning of his second-term.
Still, unless we want to travel on a constant Grover Norquist-fueled downward trajectory on federal revenues, Obama needs to take this opportunity to let all rates lapse. No one in Congress will have to do a thing. And that’s probably the only way anything smart can get done in Washington DC these days.
You are pre-supposing that Congress does nothing in the lame duck session. The experience in 2010 is not encouraging. What tools of extortion with the Republicans have in December? In 2010 is was unemployment benefits extension.
It wasn’t just extortion in December 2010: they had carrots to offer as well. They lifted the Senate filibuster in exchange for the deal, allowing a raft of legislation – most notably DADT repeal, the New START nuclear-arms treaty, and the overhaul of the food safety system – to become law.
In 2012, which the Teabagger House having ruled for two years, and the outgoing Teabaggers in no mood to move anything that Obama wants, there won’t be any such motive for the Congressional Dems and White House to strike a deal.
I am not encouraged.
And frankly I’m a little mystified at those who insist on calling themselves “reality-based pragmatists” seem to lose all reason when they see the words “Bush tax cuts.”
Not just the BTCs that expire at the end of the year. It’s payroll taxes, the unpatched AMT, the expanded tax credits that were birthed in the stimulus bill. They all expire on 12/31. And if that were not enough, the government has loaded up another layer of dynamite right on top of the tax mess and forced themselves to pass a proactive spending agreement or we go full blown austerity across every sector of government.
And this would all be fun and games if our economic future was so fucking bright you needed sunglasses. But as we are instead slumming it in Summer of Recovery III (http://www.calculatedriskblog.com/2012/07/ism-manufacturing-index-declines-in.html), with no particular prospect of things radically improving with the rest of the world going to shit, well, I’ll leave it to you to decide just how bad you really want to see hostage games played with our meager recovery.
Of course, since there’s 0.001% chance of this particular Republican House doing anything productive in the wake of the President’s reelection, blowing things up is precisely what’s going to happen.
Thrills and chills. That’ll be a fun re-inauguration speech.
The new Congress just might spend that extra tax money. That will do more for the economy than tax cuts. Direct spending is always more stimulative than tax cuts because some fraction of the tax cut is always saved rather than spent.
The beginning of his second term is the best time to have a recession (and we know that one is going to happen sometime during his terms, because we’re no longer in the 90s with long inter-recession gaps). That’d allow for a recovery to materialize by the end of his second term and set things up well for both his legacy and for the next election.
We’re still in a recession. Pragmatically speaking.
Also: “However, if, as now seems likely, Obama wins reelection, he will be in a great position to influence the new tax code.”
Roll on, but still don’t get how this seems likely.
OT: NATO 3 plead Not Guilty. Trial scheduled for July 22, 2013 at the latest. Discovery filing by Nov 26. Discovery period is October 1, 2011 until raid. October 1 was coincidentally(?) the date of first march on the Brooklyn Bridge by OWS.
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"But I will not let myself be reduced to silence."This is Rahm Emanuel’s Fred Hampton moment.
ICAM.
let ’em all lapse
I’ll be happy to pay more just to watch the greedy ones at the top squirm and whine.
Of two minds:
1.) Tax policy is very important, and we cede the argument to much. I want higher taxes so we can have more ponies and rainbows.
2.) I don’t want higher taxes knowing they’ll spend more on war and shit. Until war spending goes down, oppose more tax increases.
Of course, numbers one and two combined necessitates Serious People to talk about how much we need to gut funding for the poor…so it’s somewhat of a paradox. One is more important ideologically, though, so yes…let them expire.
The other thing happening in December is the automatic sequestrations.
So the Pentagon gets less money, automatically.
Yeah, lots of high-pitched whining as generals, millionaires and their ilk get their balls caught in the wringer.
Do it.
Contemplation is not the same as doing.
Do the “prominent democrats” include multi-millionaire Sen. Dianne Feinstein?
you appear to be forgetting self interest. nearly half of the senate is made up of millionaires. these millionaires in turn have numerous millionaire friends and supporters.
the senate voting to let the tax cuts lapse would mean raising their own taxes, and the taxes of their wealthy friends.
“Sorry”, I don’t see this happening.
they don’t have to vote, they can simply do nothing which is what this GOP Congress is good at.
“They don’t have to vote”.
You’re still missing the point. the “democrats” not insisting on a vote means they want the tax cut to continue, for themselves.
you’re missing the point, the most like result is nothing happens because that’s what usually happens
I’ll drink to that.
Have a glorious fourth.