Shouldering Tax Burden

Posted Aug. 11, 2010, at 6:02 p.m.

In early 2000, as he campaigned for the White House, George W. Bush argued that the federal budget surplus of $230 billion — a record — was evidence that taxpayers were being overcharged. It was a compelling argument. Later that year, as economic forecasters began talking about a coming slowdown, the candidate then argued that the best way to counter a looming recession was to cut taxes, especially for those who create jobs. The assertion of trickle-down economics was less persuasive. But when elected, President Bush pitched his tax cuts for the top income tier as well as the middle class, and the Republican-controlled Congress adopted the cuts.

The tax cuts, passed in 2001 and 2003, are set to expire in January. The Obama administration wants to renew the lower rates for those who earn $250,000 or less, but would let the tax breaks expire for those earning above that amount. Those who would begin paying higher taxes make up between 2 percent and 3 percent of the population, according to Treasury Secretary Timothy Geithner.

The administration is understandably gun shy about raising taxes in this election year. But Democrats can defend this move as a legitimate response to concerns, especially strong among conservatives, about the deficit. The largest chunk of the deficit left by the Bush administration was the result of the tax cuts.

It is logical that the philosophy driving tax policy distinguishes between those earning $250,000 and up and those earning below that threshold. Most of the middle class — if that group can be defined — earns much less than $250,000, but it is a useful line to draw. Consider that if an individual earns $250,000 annually, over a 40-hour week, he or she is paid $120 per hour.

Small business owners also rarely record net profits in excess of $250,000, so they will not be hurt by the Democratic plan.

Republicans repeatedly of late express concern about the deficit. Yet if they argue that tax cuts for the wealthiest Americans remain in place, that position is contrary to their call for deficit reduction.

Republicans also will argue that any tax hike during the weak economic recovery is a bad strategy. But that logic contradicts with recent evidence. The tax rates for the investor and corporate management class will return to what they were in the late 1990s, a time when the economy boomed.

The Bush tax cuts were too broad and costly. President Barack Obama’s campaign pledge to retain the cuts for those earning less than $250,000 a year is a way to improve a bad outcome.

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