Tuesday, November 29, 2011

Putting the Brakes on Tax Breaks

I seriously doubt that much will get accomplished in Congress before the end of the year, certainly nothing substantive when it comes to the deficit and the economy. When Congress adjourns after the holiday recess, it will be an election year. That means the only business that will get done will no doubt be trivial or involve elaborate posturing to shore up the campaigns. In at least one respect, that just might be a good thing. The Bush tax breaks for the wealthy will expire.

The Bush-era breaks, approved in 2001 and accelerated in 2003, are a mix of rate cuts and deductions that benefit households across the income spectrum. The most controversial part of the package is the reduction of taxes for upper-income households; those account for about $700 billion of the total $4-trillion impact the Bush tax law would have if it were extended for the next 10 years.

Hardly anyone in Congress, regardless of party, wants to end the tax breaks that benefit the middle class. Those include a $1,000 tax break for households with children and lower income-tax brackets for those earning less than $250,000 annually.

It is the breaks for the wealthy that propel the debate — including a reduction of the top individual bracket from 39.6% to 35%. The 35% top rate was the latest in a series of reductions over the last half-century, during which the top income-tax bracket has dropped from the 91% that prevailed during the 1950s to 70% for much of the 1960s and 1970s to the 50% adopted under President Reagan. ...

The fact that all the tax cuts automatically expire at the end of 2012 unless Congress reaches an agreement provides a powerful incentive for both sides to make a deal. Whether that deal leans more toward the GOP or the Democrats will depend heavily on the outcome of the November election, in which the Bush tax cuts will continue to drive the debate, a prospect noted by the credit rating agency Moody's. The credit agency does not take a political position on the cuts but notes that its outlook for U.S. debt will be partly determined by how the issue is resolved.
[Emphasis added]

"Powerful incentive to make a deal" or not, this is one time the country would benefit from deliberate inaction by both parties and the White House. Yes, the middle class (what's left of it) would take a hit, but not an insurmountable one. Who will finally have to start paying a fair share would be the wealthy. After all, the whole point of those tax breaks was to reward the "job creators." I haven't seen too many jobs created in the US by those folks. In fact, unemployment continues at around 9% after nearly a decade of rewarding the wealthy in anticipation of all those new jobs. It's a theory that just didn't pan out.

In the mean time, with unemployment high after the ravages of the Wall Street churners got through with round one of the derivatives shell game, the federal budget went from a surplus to a huge deficit, with no end in sight unless people actually get back to work. Instead of rewarding the wealthy for the epic failure, the government should pump some money into real job creation by funding, among other things, improvements to our deteriorating infrastructure.

And the wealthy? Let them eat cake with just a little less government icing. They can handle it. After all, as Libby Spencer pointed out in her usual excellent style, the rich are different.

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