It’s Not a Tax Increase

Posted Oct. 04, 2010, at 5:35 p.m.

Republican leaders and their claque are promoting the idea that letting the Bush-era tax cuts for the rich expire would amount to a tax increase. The conservative lobbying organization Americans for Tax Reform says it would be “the largest tax hike in history.” Of course, that’s just standard talk for the ATR, which says it “opposes all tax increases as a matter of principle.” But many other Americans seem to have bought into that idea and the accompanying trickledown theory.

Lest anyone fall for this political explanation of what should happen to President George W. Bush’s gift to the millionaires and billionaires, here is the truth of the matter: Allowing the massive cuts to expire would not increase taxes, but rather it would simply undo an unwise and unfortunate tax reduction and let the tax level revert to that of the low-deficit Clinton years. Remember that as a time of budget surplus, not deficits.

Mr. Bush, true to his 2000 platform, called for the cuts, mainly to benefit the rich. Congress, including many Democrats, bought the idea that they would ensure prosperity and reduce the deficit and the national debt. They made the cut temporary, expiring this Dec. 31, because that was the only way it could pass.

President Barack Obama has proposed letting the tax cuts lapse at higher levels but retaining the current reduced rates on incomes up to $200,000 for individuals and $250,000 for couples. Republican congressional leaders generally are refusing to let the tax cuts for the rich lapse unless the cuts for the middle class lapse, too. The Republican position is, in effect, “if the rich can’t share in the bounty, rates should rise for everyone,” according to Richard H. Thaler, a University of Chicago economist, in a Sept. 26 New York Times article.

The chief argument for extending the tax cuts for the rich is that it would boost business spending and provide new jobs and reduce unemployment. But studies show that the rich save most of their income while the poor spend most of theirs. The Congressional Budget Office examined 11 different options to stimulate growth and job creation. The study showed that job creation and growth would be helped more by a job-creation tax credit, funds to help the states balance their budgets and extended unemployment insurance benefits.

The Treasury Department and the congressional Joint Committee on Taxation estimate that letting the high-income tax cuts expire on schedule would free up almost $40 billion in revenue next year and almost $90 billion over two years — money that could be used to generate economic activity and jobs.

Further, the tax cuts — along with the wars in Iraq and Afghanistan — are a primary reason for the huge increase in the national deficit. No politician can honestly call for making the tax cuts permanent and also claim concern about the deficit.

President Obama is politically and economically right in demanding that the taxes for the rich expire at the end of this year and retain the cuts for the hard-pressed middle class. Moderate Republicans, as well as Democrats, should see the good sense of that approach.

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