Members of Congress are finally heading back to their jobs after an entire month of summer vacation. And, to their disgust, they have important work ahead: determining the future of the expiring Bush tax cuts. What will they do?
The $1.3 trillion Bush tax cuts, passed in 2001 and 2003, are scheduled to "sunset" — revert to their Clinton-era rates — at the beginning of 2011, if Congress does nothing about them. No one wants to effectively raise taxes on every citizen right now. Then again, we are an embarrassingly broke nation that needs major revenue over the medium- and long-term, and extending all of Bush's tax cuts permanently would result in a $3 to $4 trillion loss of revenue.
And no, these tax cuts do not in any way "pay for themselves," in terms of boosting overall growth. The Republicans who say this don't even believe it. The justification for these cuts back in our hilariously utopian 2001, when government surpluses were projected to erase the entire national debt within the next 10-20 years, was that Congress needed to dump cash to avoid becoming the debtless holder of private assets and interfering with The Markets. This was some savvy bullshit, but bullshit nonetheless, and now we need to raise taxes.
Barack Obama wants to extend, for at least a few years, all of the middle class income tax cuts, while ending the cuts on the top two brackets: reverting the 33% one back to 36%, and the top 35% one to 39.6%. These teensy proposed marginal rate hikes on the richest human beings in world history are considered very controversial in Washington, D.C.
What will Congress ever do, now? Democrats know that if they can't reach any agreement with Republicans before time's up, then all rates will raise this January, and they will be blamed.Thus, Recently departed budget director Peter Orszag's take in this morning's New York Times looks about right:
In the face of the dueling deficits, the best approach is a compromise: extend the tax cuts for two years and then end them altogether. Ideally only the middle-class tax cuts would be continued for now. Getting a deal in Congress, though, may require keeping the high-income tax cuts, too. And that would still be worth it.
Why does this combination make sense? The answer is that over the medium term, the tax cuts are simply not affordable. Yet no one wants to make an already stagnating jobs market worse over the next year or two, which is exactly what would happen if the cuts expire as planned.
The only problem with this: in two years, during a presidential election season, will Democrats be willing to let all of the cuts expire? Politicians do enjoy kicking this can down the road, as far as it will go. Eventually it might pass through your tent city.
[Image via AP]