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Letting Tax Cuts Expire Is Republican Policy

02 Aug 2010
Posted by Bruce Bartlett
The debate over whether or not to allow some or all of the Bush tax cuts to expire reminds me of an op-ed I wrote two years ago on this topic. I point out that if Republicans didn't want their tax cuts to expire then they shouldn't have passed them with expiration dates. This suggests that their intention was to allow them to expire when the time came.
 
Los Angeles Times
April 22, 2008
 
Truth and tax cuts; The GOP wants to have its cake and eat it too.
 
It is an article of faith among Republicans that tax cuts are the cure for every problem the economy faces, and that tax increases are the equivalent of economic poison. Any hint by Democrats that the current administration's tax cuts should be revisited in light of changing economic or fiscal conditions is met with charges that they are proposing the largest tax increase in history.
 
The truth is that President Bush's tax cuts didn't do much good for the economy; they were mostly giveaways to GOP political constituencies and were little different conceptually from pork-barrel spending. Although there were some good elements to the tax cuts, such as the reduction in marginal tax rates, they were fatally undermined by their temporary nature.
 
The fact is that the massive tax increase Republicans claim the Democrats are proposing is entirely the result of the GOP's penny-wise and pound-foolish policies. Rather than expend the effort to make their tax cuts permanent in the first place, they attached expiration dates to every major provision. Most will expire automatically at the end of 2010. The alleged tax increase that would result is simply a consequence of the tax system returning to what it was before 2001, when the first tax cuts were implemented.
 
In other words, no one is proposing new taxes -- so GOP activist Grover Norquist's famous "no new taxes" pledge that virtually all Republicans have signed in blood wouldn't even be violated. It is simply a matter of allowing the law that Republicans enacted to follow the course that they chose in the first place.
 
Republicans respond that they had no choice; they didn't have the votes to enact permanent tax cuts, so it was temporary cuts or nothing. This is not true. They could have made them permanent, but that would have required bipartisanship and more political capital than Republicans were willing to spend. So they took the easy way out, figuring that Democrats wouldn't dare oppose extending the tax cuts when the time came, lest they be accused of favoring a vast tax increase.
 
But this isn't even the worst of the Republican dishonesty. That goes to projections from the Congressional Budget Office showing a sharp reduction in budget deficits after 2010. But these lower deficits result largely from the expiration of the tax cuts and the higher revenues that would result. Thus, Republicans are trying to have their cake and eat it too. They get to blame Democrats for advocating higher taxes while implicitly using those higher taxes to make future deficits smaller.
 
This sort of political game may be fun for Republicans who think that they have boxed Democrats into a corner. But this game has had real economic consequences. Because the tax cuts are not permanent, their economic impact has been severely diminished.
 
All economists know that permanent tax changes have far more effect than temporary ones because people won't change their behavior significantly unless they have some assurance that the tax regime will be in effect for the long term. Businesses and individuals often make economic decisions that won't pay off for many years. If they think the tax system will be more unfavorable when the payoff comes, they will act differently, favoring smaller, short-term gains and rejecting opportunities for higher profits in the future.
 
There is little doubt that the economy would have been stronger with permanent tax cuts. But that would have meant fewer tax cuts and thus fewer opportunities to buy votes. It also would have forced Republicans to deal with the true budgetary consequences of their actions.
 
The reality is that we are not going to see the biggest tax increase in history in 2011 because neither Congress nor the White House will allow it to happen, regardless of which party is in control. The choice is not between full extension of all the Bush tax cuts or a massive tax increase, but between extension of the Bush tax cuts and some other sort of tax cuts that would keep the tax burden from rising on the vast majority of taxpayers.
 
Tax policy is an important campaign issue, and it would be good to get agreement on the post-2010 tax code as soon as possible. Current law makes it impossible to plan for the future with regard to taxes. Whatever is done should be done permanently to the greatest extent possible.

Conservatives needs to stop

Conservatives needs to stop playing the victim and learn to take responsibility for their actions.


David Stockman

Bruce - I take it you agree with much of what David Stockman wrote today in the NY Times? His op-ed sounded like a combination of Paul Krugman, Joe Stiglitz, yourself and Paul Volcker all brewed together into a realistic view on US economic policy. And the fact that it came from a former Republican in the Reagan administration was another unsurprising twist.

link: http://www.nytimes.com/2010/08/01/opinion/01stockman.html?pagewanted=1


Dear Mr. Bartlett, I enjoy

Dear Mr. Bartlett,

I enjoy your blog and your writings. They make the GOP look bad in ways that liberals are rarely able to argue.

But, why do you never criticize the Democrats? Everything you write is an attack on the right, the GOP, and conservatives. Almost every single thing I've read by you involves you slamming the GOP. Why on earth do you never criticizing Democrats?

You make it seem as if Democrats are in some way better than Republicans. Bush was absolutely terrible, but Obama is doing a terrible job as well. Democrats are just as terrible as the GOP. I would go into the endless list of terrible policies enacted by the left, but I don't see the need for it.

You're not a political partisan hack like most of the left and right, so I would expect better from you... why not switch it around and switch between attacking the left and right back and fourth?

Ilya


I don't remember...

ever promising to be even handed. Why should I be? If you want to read attacks on Democrats 24/7 just tune in to Fox News. But I never hear any conservatives suggest that Fox is unbalanced in its coverage.

The truth is that right wingers just use the "balance" criticism because they can't defend their own side's stupidity. It's just a debating tactic, not a serious concern. In the meantime, I will say what I think. Those that don't like it should stick with WorldNutDaily, Newsmax, Human Events, National Review, the Weakly Standard and many other places where they can get their fix of mindless, rabid anti-Democrat hatred. 


move on bruce

Bruce, you are a talented analyst but the personal animosity you have for many Republicans leads you to reach too far in your critiques and show poor judgment.

"The fact is that the massive tax increase Republicans claim the Democrats are proposing is entirely the result of the GOP's penny-wise and pound-foolish policies. Rather than expend the effort to make their tax cuts permanent in the first place, they attached expiration dates to every major provision."

This is simply disingenuous... This has to do with not having enough Democratic votes to break a filibuster and thus having to pass tax cuts through budget reconciliation. It would be like saying it is the Democrats fault in 10 years when certain elements of Obamacare expire... no, they didn't have any republican votes so they had to move it through reconciliation. Would we really say it was because they didn't put the effort forward and weren't bipartisan?

Yet the type of tax cuts democrats support, Obama's make work pay credit for instance, are the gimmicky tax cuts you deride as part of the Bush tax cut. Where was the magical bipartisan deal to peel off ten democrats to come from in 2003 when the capital gains tax was cut and the bush marginal rate tax cuts from 2001 were accelerated? It would have been a deal with more of bad tax policy you deride and less/no marginal rate reductions.

"they were mostly giveaways to GOP political constituencies and were little different conceptually from pork-barrel spending. Although there were some good elements to the tax cuts, such as the reduction in marginal tax rates"

What does CBO estimate to be the relative costs of different parts of the tax cut: marginal rates, child credit, AMT fix, estate tax, etc.? Which correspond to giveaways? Does this represent a majority of the cost to correspond to your "mostly giveaways" description?

And do you support making all the marginal rates permanent and keeping the capital gains tax rate at 15%? You always revert to, well, we know nobody will support spending cuts, therefore, we need to introduce a VAT, raise marginal rates, etc? Do you personally think any of that is the preferable outcome? Is that better ideal policy to you than Paul Ryan's roadmap? Yet, you glaze over policy analysis by simply stating it isn't politically feasible, and then go on to carry out hyperbolic personal attacks on GOP politicians.

Newsflash... what, when and where have politicians exhibited great intellectual integrity and rigor? What Congressional democrats have proposed a VAT or raising middle class marginal tax rates? There aren't enough $300k earners behind the tree to tax our way to a 3% GDP deficit from solely these earners. Yet you appear to have no personal invective towards democratic politicians and unsustainable fiscal practices.

At a certain point the tone and content of much of your work merely looks like sacrificing analytical rigor for a chance to garner more media attention and money from book deals as a former Reagan official criticizing Republicans, or perhaps simply satisfying some perceived wrongs against you by certain members of the GOP/conservatives. move on and grow up.


disingenuous indeed

"This is simply disingenuous... This has to do with not having enough Democratic votes to break a filibuster and thus having to pass tax cuts through budget reconciliation."

1) The only time you need the votes to defeat a filibuster is when a bill is filibustered.

2) The vote totals indicate that Republicans would have had enough Democratic votes to break a filibuster if one had occurred. Once Republicans discovered they couldn't even get 50 votes for their initial 1.6 trillion proposal, Senator Breaux worked out a compromise proposal calling for 1.3 trillion in tax cuts and the budget resolution then passed the Senate by a vote of 65 to 35. The tax cuts were later increased to 1.35 trillion, but 12 Democrats still voted for the final bill.


Tax Cuts are a Smart Political Strategy ........

........ supported by voodoo economics.

Greg Mankiw did not subscribe to the voodoo economics that tax cuts would pay for themselves. While on the CEA he made Keynesian-style stimulus arguments that the tax cuts would pull the economy out of the recession that Bush inherited from Clinton.

But on the political front, I recall 2001 that Republicans were worried that Democrats would have a strong political argument to spend the surplus on more education, Medicare, etc. Bruce, please correct me if I'm wrong, but I recall Republicans saying that the best way to prevent the Democrats from getting their hands on the surplus and spending it on program expansions was to return the surplus back to the taxpayers.

In light of the fact that Republicans weren't willing to make commensurate cuts in government spending, I think the Bush tax cuts were cowardly political opportunism. However, the willingness of Democrats to create a huge new entitlement program (Obamacare) in the midst of the most massive shortfall in revenues in decades only proves that the Republicans were right about their assessment of Democrats.

From 1932 - 1980, the Republicans were fiscally responsible tax collectors for the Democrat's welfare state. During that span, they held the White House and Congress simultaneously for 2 years. Since 1980, they've done much better acting fiscally irresponsible.

Medicare, Social Security, Medicaid, Obamacare, etc. are Democrat programs. The Democrats should take responsibility and pride for paying for these programs. It's not the job of Republicans to be tax collectors for the other party's wish list.

If Obama had any leadership qualities, he would be out in front of advocating for the expiration of the tax cuts. Unfortunately, he's a coward and a cynic.

This nation is getting what it deserves because the electorate doesn't want to hear honesty. Exhibit A -- Paul Ryan. Where is the Democrat or even Left-wing think tank rejoinder to his proposal? It may be whacked and politically unrealistic, but I don't see anyone else stepping into the arena.


Tax Cuts

I am looking forward to reading Mr. Bartlett's commentary when Congress acts later this year to temporarily extend almost all of the "Bush tax cuts". Specifically, I wonder:

--Will he refer to the extension (or better re-enactment) of these massive tax cuts as the "Obama tax cuts" rather than the "Bush tax cuts?"

--Will Mr. Bartlett write a scathing editorial blaming the Democrat controlled Congress for failure to make the cuts permanent on the basis that they lacked the proper "bi-partisanship" or the "willingness to expend political capital?".

No one reads this blog to benefit from Mr. Bartlett's objectivity---every professional pundit needs a constituency and, like a television program, ratings depend not so much on quality as the entertainment factor or the fact that the program confirms the audience's pre-conceived notions. Here, Mr. Bartlett is not any different from Fox. This blog doesn't confirm any of my pre-conceived notions, but I do find it mighty entertaining.


Bush tax increase/Obama tax cut

If the tax cuts are allowed to expire, that should be referred to as the Bush tax increase; he signed the law that will make it happen. If the tax cuts are extended, they will become the Obama tax cut; same reason. Anyone who assesses the credit/blame differently will have a lot of arguing to do to convince me they aren't a hack.


Bush Temporary Tax Cuts

Well, it's not quite that simple. If the cuts are not re-enacted, we would probably more accurately refer to the (then) historical Bush tax cuts as the "temporary Bush tax cuts". In fact, that's the more accurate term to begin with. Objectively, I don't think at this stage Bush II has any effective influence on what happens. And, if you want to refer to failure to re-enact those temporary cuts, I hardly think you could refer to them as a "Bush tax increase" without, in the same breath, mentioning that those increases serve to eliminate the prior cut prospectively. We then get back to the same categorization---Bush is responsible (along with Congress) for two large temporary tax cuts. If you want to explain it differently, I'd have to call you a hack.


Obama Tax Increase

By the way, I trust you appreciate the fact that, because I am not a hack, I didn't argue failure to re-enact the temporary Bush tax cuts should be considered an Obama tax increase. Note that I assiduously avoid the use of the term "extend" in this context. I much prefer the more accurate term "re-enact" because that more clearly suggests what happens and who should take responsiblity for a decision to permit any of the same tax cuts post 2010 rather than allowing existing law to take its course.


Bruce, so are we to take the

Bruce, so are we to take the above comment to mean you think of yourself as similar to Fox News, WorldNet, etc., willing to subordinate facts to a partisan political agenda and making money targeting an audience wanting to hear political attacks?

(1) Article does not acknowledge basic Senate parliamentary procedure regarding the filibuster and budget reconciliation.
(2) Criticize the Bush tax cuts as "mostly giveaways" yet endorses the major component of them, marginal tax rate reductions. See the below link that the major $ cost of the 2001, 2003 tax cuts is marginal rate reductions on income and lowering taxes on capital and dividends.
http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=2785

This is basic, easy stuff.. intellectual integrity to facts/analysis is the priority or partisan bashing to boost your books/paychecks is the priority. I'm just amazed at your above comment seemingly readily admitting that you have no intention of being evenhanded, irregardless of the facts. You could get your name in the LA Times by bashing Republicans under the byline of former Reagan official, and chose to do it, even if the analysis was of the quality of a freshman writing for a campus political rag.


If I remember correctly

and I'm not saying I do, it was the estate tax component that Republicans wouldn't compromise on. They wanted to claim that they had abolished the "death tax," when in fact they did nothing of the sort. They rejected substantial increases in the exclusion (10X or 20X, I think) in favor of getting one year - this year - as the year where the estate tax goes away, only to come fully back to life next year.

In many ways, I am a supply-sider (elected representatives have an obligation to work on discovering the least inefficient tax policy they can), just not a WSJ supply-sider. For the life of me, I don't know that the estate tax changes made the slightest difference in having to pay lawyers and accountants since anybody remotely affected couldn't predict the law.

The other piece of this, for me, is the article of faith amongst Republicans that investment income is different than wage income. I realize that dividend payment is a good BS check against corporate fraud, and that public policy ought not discourage such obvious controls, but the flip side is that capital gains treatment should not contribute to asset bubbles - which it clearly did.

My suspicion is that all Republican tax policy can be traced through Mr. Norquist and his buddies at the WSJ, NR etc. to very specific donors to the SRCC, CRCC, ATR etc, who knew pretty precisely what would benefit them most, with rhetoric that would make it seem like a huge win for simplicity, transparency and the anti-socialist common good.


Oh the irony...

It is funny that the League of American Voters is running an ad on this page urging readers to extend the Bush tax cuts. "Urgent: Keep the Bush Tax Cuts" is what it said when I read the blog post.




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