The next big fight in Congress revolves around extending the Bush tax cuts. Unlike issues like climate change or stimulus, where the public does not accept the Democrats' basic analysis of the problem, on the tax cuts the Democrats hold the whip hand. The question is whether they emerge with a political win, a public policy win, or both.
Let's review a few basic facts about the Bush tax cuts. When Republicans took control of government in 2001, their top priority was reducing tax rates on high income earners. Since tax cuts for the rich were unpopular, they had to pair those cuts with middle-class tax cuts in order to make them politically salable. That's how they pressured Democrats into supporting them. By packaging the whole thing together, they could accuse Democrats of opposing tax cuts for the middle class if they voted no.
Now, ten years later -- and what a decade of bountiful economic growth we've enjoyed with the energies of investors and entrepreneurs finally unleashed from restrictive Clinton-era tax rates! -- the Bush tax cuts are scheduled to expire. Republicans want to extend the whole thing. Democrats just want to extend the parts that benefit people who earn less than $250,000 a year.
Now, here's the underlying dynamic. Raising taxes on the middle class is unpopular. But raising taxes on the rich is wildly popular. The truth is that neither party cares very much about the portion of the Bush tax cuts that benefit the middle class. Republicans just threw that in to sell the upper-bracket tax cuts, which is what they care about. Democrats might prefer a more progressive tax code with lower middle-class taxes, but most of them would rather have the revenue instead. But Democrats promised not to raise taxes on people earning less than $250,000 a year -- a promise they felt they had to make in order to win. And they can't break that promise without suffering political consequences.
Republicans, on the other hand, don't want to pass an extension of the middle-class Bush tax cuts without the upper-bracket tax cuts. That would leave the federal tax code more progressive than it was under Bill Clinton -- you'd have a combination of Clinton-era tax rates on the rich and Bush-era tax rates on the middle class. Conservatives have been fretting about such a result for more than a year, warning ominously about a country in which half the population pays no income tax. (They'd still pay other taxes, but the central Republican goal is to minimize the progressivity of the tax code.)
So we're down to a game of chicken. Here's why the Democrats hold the whip hand. They can pass an extension of the middle-class Bush tax cuts through the House. If Republicans let the bill pass, then they've lost their leverage to extend the unpopular Bush upper-income tax cuts. If they filibuster it, then Democrats can blame them for raising taxes on middle-class Americans. It would let Democrats out of their pledge. (Hey, they tried to keep the middle-class tax cuts.) Then nothing would pass, and we'd instantly revert to Clinton-era rates across the board.
What kind of effect would that have on the deficit? A huge one:
That dark orange stripe is the portion of the deficit attributable to the Bush tax cuts. That would be wiped out. Ending the tax cuts would basically solve the medium-term deficit problem.
The key factor here is that, just as Republicans got to frame the debate in 2001 by combining the tax cuts into an up or down vote, Democrats can frame the debate now by separating the policies Republicans pretend to care about from the ones they actually care about. Republicans want to have a vote on the whole collection of Bush-era tax cuts. Democrats shouldn't give it to them. You hold a separate vote on the middle class portion and dare them to oppose it.
This seems to be the plan:
"The Senate will move first, and it will be a test to see whether Republicans filibuster" to block the bill in a bid to also win tax cuts for higher earners, said Rep. Chris Van Hollen of Maryland, head of the House Democrats' re-election effort.
"If you can't get it out of the Senate, then you take it to the election," Mr. Van Hollen said in a recent interview. "You say to the American people that Republicans want to continue to hold middle-class tax relief hostage for an extension of tax breaks for [the well-to-do]. That will be the debate."
Republicans have followed a strategy of opposing nearly everything the Democrats do. It's worked very well. But the peculiar dynamic of this debate puts the Republicans in a position where they can't win, and obstructing the Democrats is probably their worst move.
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Except -- and correct me if I'm wrong -- the new 10% bracket, 25% bracket, the 28% bracket (all which the wealthy still get a substantial tax break), the marriage "penalty," and the child tax credit amount to $255 billion/yr. in revenue loss. Raising the 33% tax bracket to 36% and the 36% tax bracket to 39.6% gets you $50-75 billion/yr. When we've got around a $300-500 billion budget deficit (correcting for economic circumstances), just reinstating the 36% and 39.6% tax brackets, the inheritance tax, the capital gains and dividend 20% tax rates, won't do remotely enough to reduce the deficit. Of course, Democrats don't exist to balance the budget; they exist to correct the gaps left by th ... view full comment
Except -- and correct me if I'm wrong -- the new 10% bracket, 25% bracket, the 28% bracket (all which the wealthy still get a substantial tax break), the marriage "penalty," and the child tax credit amount to $255 billion/yr. in revenue loss. Raising the 33% tax bracket to 36% and the 36% tax bracket to 39.6% gets you $50-75 billion/yr. When we've got around a $300-500 billion budget deficit (correcting for economic circumstances), just reinstating the 36% and 39.6% tax brackets, the inheritance tax, the capital gains and dividend 20% tax rates, won't do remotely enough to reduce the deficit. Of course, Democrats don't exist to balance the budget; they exist to correct the gaps left by the cruelties of the free market. So why should any Democrat spend as much political capital reducing the deficit as they should, say, increasing affordability in health care reform?
My idea would be to replace all the Bush tax cuts for a two-year temporary $1,200/$2,400 tax credit against payroll taxes (similar to President Obama's "Making Work Pay" tax credit) for those individuals/families earning below $125,000/$250,000. In this policy idea, the wealthy wouldn't get *any* tax cuts rather than some from the lower marginal tax brackets, and upper-middle class families would get a modest tax increase, though not nearly as much as the wealthiest Americans. Then when the recovery ends, the tax cut would expire in a couple of years, and the middle class would be handed a large tax increase.
Also, - and what you left out of this excellent capsule summary, Jonathan - Republicans constantly lied about the amount of tax relief going to the wealthy, as you know so well. The Democrats should hold the Republicans' feet to the fire on this. They have the advantage here.
Also, - and what you left out of this excellent capsule summary, Jonathan - Republicans constantly lied about the amount of tax relief going to the wealthy, as you know so well. The Democrats should hold the Republicans' feet to the fire on this. They have the advantage here.
More nonsense over at The Daily Palin this afternoon. Andrew is in full pit bull mode again concerning Journolist. This is simply a non-story but Andrew is doing his best to keep it alive. He is turning on Ezra Klein over Journolist. I have thought it quite bizarre that this self-professed Oakeshottian puts up so many Ezra Klein posts, often referring to him merely as "Ezra." Klein is an unreconstructed Enlightenment rationalist, whom I don't much care for. But now Andrew is calling him out. The obsessions are bizarre over at TDP: Sarah and Trig Palin, Israel, now Jounolist. Stay tuned for more comic relief from Cap'n Andrew.
More nonsense over at The Daily Palin this afternoon. Andrew is in full pit bull mode again concerning Journolist. This is simply a non-story but Andrew is doing his best to keep it alive. He is turning on Ezra Klein over Journolist. I have thought it quite bizarre that this self-professed Oakeshottian puts up so many Ezra Klein posts, often referring to him merely as "Ezra." Klein is an unreconstructed Enlightenment rationalist, whom I don't much care for. But now Andrew is calling him out. The obsessions are bizarre over at TDP: Sarah and Trig Palin, Israel, now Jounolist. Stay tuned for more comic relief from Cap'n Andrew.
If I may coin a phrase (actually, not much coinage here, given that I am riffing off a famous phrase), hell hath no fury like a scornful ex-neoconservative. It looks to me like enthymematic illogic is at work here: Andrew initially supported the war criminal D. Cheney and his sidekick, W, and now in his disillusionment and out of fury he is hitting back and he has come to Jerusalem as a site of evil. AS should most definitely donate his mind to science.
If I may coin a phrase (actually, not much coinage here, given that I am riffing off a famous phrase), hell hath no fury like a scornful ex-neoconservative. It looks to me like enthymematic illogic is at work here: Andrew initially supported the war criminal D. Cheney and his sidekick, W, and now in his disillusionment and out of fury he is hitting back and he has come to Jerusalem as a site of evil. AS should most definitely donate his mind to science.
The GOP line on this issue is that the Democrats plan to "raise taxes on small businesses". I know this because I watched FauxNews for about 15 minutes this morning, and the FauxNews commentator kept repeating that line. The "Democratic respondent" was Bob Beckel, who I regret to say did not do a very good job. He didn't really challenge the small business argument, and just kept repeating a couple of points about the deficit and tax fairness (points I agree with, but they're not very effective.
Here's what I propose an effective set of arguments on this issue might sound like:
"You Republicans are making the same arguments you made in 1993; you were wrong then, and you are wrong now. Rememb ... view full comment
The GOP line on this issue is that the Democrats plan to "raise taxes on small businesses". I know this because I watched FauxNews for about 15 minutes this morning, and the FauxNews commentator kept repeating that line. The "Democratic respondent" was Bob Beckel, who I regret to say did not do a very good job. He didn't really challenge the small business argument, and just kept repeating a couple of points about the deficit and tax fairness (points I agree with, but they're not very effective.
Here's what I propose an effective set of arguments on this issue might sound like:
"You Republicans are making the same arguments you made in 1993; you were wrong then, and you are wrong now. Remember when Bill Clinton proposed a package of spending cuts and tax increases on the wealthiest taxpayers, to reduce the deficit he inherited from 12 years of Republican rule? You guys said, 'oh no, any tax increase, especially on our biggest campaign contributors, will wreck the economy!' Well, you were wrong. The 90s were great times for most Americans economically - including for millionaires - despite your gloom and doom predictions."
"And the 90s were good times for small businesses. Let's talk about that. First of all, you are being misleading when you keep repeating "small business" in connection with the repeal of 2% of the Bush tax cuts. If it's really a "small" business, their tax bill is unlikely to increase. If the business is incorporated (as many are), then only the salary that the owner decides to draw from the corporation would be effected, and then only if TAXABLE INCOME was over $250K. And even those so-called "small business" owners who would pay slightly higher taxes would only be paying what they were paying in the 1990s - which as I've said, were pretty good times."
We should also talk more about the "Obama tax cuts" which were part of the stimulus bill.
Lib, isn't Ezra Klein like 15 years old? I'm not sure if he has had time to become a constructed Enlightenment rationalist, much less an unreconstructed one.
On a more serious note, how hard would it be for TNR to do a blog with the daily musings of its prolific and protean alumni association? Capn' Andrew, the Kraut, Beinart, Chuck Lane, Kaus (if he's ever allowed to blog again), Freddy the Beadle for the comic relief from an alternate universe. Is there a way we can make this happen? I for one would never have to leave TNR.com again!
Lib, isn't Ezra Klein like 15 years old? I'm not sure if he has had time to become a constructed Enlightenment rationalist, much less an unreconstructed one.
On a more serious note, how hard would it be for TNR to do a blog with the daily musings of its prolific and protean alumni association? Capn' Andrew, the Kraut, Beinart, Chuck Lane, Kaus (if he's ever allowed to blog again), Freddy the Beadle for the comic relief from an alternate universe. Is there a way we can make this happen? I for one would never have to leave TNR.com again!
I don't understand the filibuster reference. The Democrats can pass the middle class reinstatement in the House with a majority vote, and then do the same in the Senate under reconciliation rules, right? The while Bush tax cut was passed that way, so making part of it permanent surely can be as well. What am I missing?
I don't understand the filibuster reference. The Democrats can pass the middle class reinstatement in the House with a majority vote, and then do the same in the Senate under reconciliation rules, right? The while Bush tax cut was passed that way, so making part of it permanent surely can be as well. What am I missing?
That graph is eye-watering.
Not only resolving the medium term deficit problem but also shoring up the Dollar, almost overnight, without having to resort to the damaging procyclical cuts that Europe has to endure to save the Euro. And Republicans have nowhere to hide in any scenario. What a gift from Dubya!
That graph is eye-watering.
Not only resolving the medium term deficit problem but also shoring up the Dollar, almost overnight, without having to resort to the damaging procyclical cuts that Europe has to endure to save the Euro. And Republicans have nowhere to hide in any scenario. What a gift from Dubya!
Ezra Klein was born on May 9, 1984, therefore he is twenty-six years old. That is plenty enough time to become an unreconstructed Enlightenment rationalist. I was somewhere in this neighborhood when I was nineteen in 1972. It took my a while to unlearn it. And Klein probably won't change anytime soon.
Ezra Klein was born on May 9, 1984, therefore he is twenty-six years old. That is plenty enough time to become an unreconstructed Enlightenment rationalist. I was somewhere in this neighborhood when I was nineteen in 1972. It took my a while to unlearn it. And Klein probably won't change anytime soon.
IowaBeauty: If Chait's analysis is correct, there's nothing for the Democrats to gain by using reconciliation, especially if he's right that the Dems aren't really interested in middle-class tax cuts as a policy matter. Here, the political advantage comes from forcing the Republicans to filibuster tax cuts for hard-working middle-class Americans.
IowaBeauty: If Chait's analysis is correct, there's nothing for the Democrats to gain by using reconciliation, especially if he's right that the Dems aren't really interested in middle-class tax cuts as a policy matter. Here, the political advantage comes from forcing the Republicans to filibuster tax cuts for hard-working middle-class Americans.
Very good recommendations you just gave the Democrats, Jonathan. But, judging from their performance the last eighteen months, what makes you think they have the political spine to pull it off?
I bet it's the usual routine: Democrats submit bill, Republicans give a hard stare, blue dog Democrats jump ship, and the White House caves. And, of course, the consequent ballooning deficit is blamed on the "free spending" Obama White House.
That has become the norm.
Very good recommendations you just gave the Democrats, Jonathan. But, judging from their performance the last eighteen months, what makes you think they have the political spine to pull it off?
I bet it's the usual routine: Democrats submit bill, Republicans give a hard stare, blue dog Democrats jump ship, and the White House caves. And, of course, the consequent ballooning deficit is blamed on the "free spending" Obama White House.
That has become the norm.
Imagine explaining Jonathan's strategy to someone uninformed in another country who, while you're explaining about Reagan and Bush and Clinton and Gingrich and Scalia and tax cuts and deficits, is saying to himself or herself, "Yes, but what is the right thing to do?"
Imagine explaining Jonathan's strategy to someone uninformed in another country who, while you're explaining about Reagan and Bush and Clinton and Gingrich and Scalia and tax cuts and deficits, is saying to himself or herself, "Yes, but what is the right thing to do?"
A large, temporary tax cut for low to middle income folks in the form of immediate relief from the payroll tax, the tax that low to middle income folks pay, together with expiration of the Bush tax cuts to show the markets that we are serious about eliminating long-term deficits. [Unlike a tax credit, relief from the payroll tax will immediately add to take home pay and stimulate the economy.] Also extend the Obama measure temporarily relieving the employer from its share of the payroll tax for new hires. And eliminate the estate tax for all but the largest estates by increasing the exemption to $5 million per person ($10 million per couple). My problem with the Chait strategy is that on ... view full comment
A large, temporary tax cut for low to middle income folks in the form of immediate relief from the payroll tax, the tax that low to middle income folks pay, together with expiration of the Bush tax cuts to show the markets that we are serious about eliminating long-term deficits. [Unlike a tax credit, relief from the payroll tax will immediately add to take home pay and stimulate the economy.] Also extend the Obama measure temporarily relieving the employer from its share of the payroll tax for new hires. And eliminate the estate tax for all but the largest estates by increasing the exemption to $5 million per person ($10 million per couple). My problem with the Chait strategy is that once you open the door to extension of Bush tax cuts for one group (low to middle income), the Republican full-court press together with Democratic defections will result in extension of the Bush tax cuts for all groups. Which may well be the intent of Chait's strategy.
1. We need to constantly remind people that we're talking about returning the wealthiest taxpayers to the rates they were paying in the 90s. Those rates didn't "hurt the economy", but they were part of a successful deficit reduction strategy.
Get Bill Clinton out on the stump in September and October! No one has more credibility on this issue of taxes and deficits. He can remind voters that in 1993, when he raised the top rate, The Republicans predicted economic disaster and increased deficits. They were wrong on both counts. He should say, "If you're concerned about deficits, the first thing you have to do is stop voting Republican; look at the evidence of the past 30 years!"
2. We ne ... view full comment
1. We need to constantly remind people that we're talking about returning the wealthiest taxpayers to the rates they were paying in the 90s. Those rates didn't "hurt the economy", but they were part of a successful deficit reduction strategy.
Get Bill Clinton out on the stump in September and October! No one has more credibility on this issue of taxes and deficits. He can remind voters that in 1993, when he raised the top rate, The Republicans predicted economic disaster and increased deficits. They were wrong on both counts. He should say, "If you're concerned about deficits, the first thing you have to do is stop voting Republican; look at the evidence of the past 30 years!"
2. We need to challenge the FauxNews argument that this would "hurt small business". We do this by: (a) challenging their definition of "small business", (b) discussing some of the details of the proposed increase, e.g., it's for "taxable income over $250,000"; if you earn $250K, your taxable income is considerably less, and (c) pointing out again and again that we're just proposing to return the top bracket to the levels of the 1990s - good economic times. The Republicans have no answer for this. They're hoping we won't bring up the 90s.
3. Agreed, we need to raise the exemption on the estate tax, and lower the rate as well (55% just strikes most people as too high, even if they're never going to pay it).
4. I like Tom Friedman's proposal of a carbon tax, with offsetting reductions in payroll and corporate taxes.
Iowabeauty, we *want* the threat of filibuster. That's the "political win" the democrats are looking for. We're daring them into a game of chicken. It will be interesting to see if the Republicans play along. Separate votes are key. If Republicans vote against extending the middle-class tax cuts because the cuts don't also include cuts for the wealthiest 1%, then let them go back to their districts and states and try to sell that to Joe Plumber.
Iowabeauty, we *want* the threat of filibuster. That's the "political win" the democrats are looking for. We're daring them into a game of chicken. It will be interesting to see if the Republicans play along. Separate votes are key. If Republicans vote against extending the middle-class tax cuts because the cuts don't also include cuts for the wealthiest 1%, then let them go back to their districts and states and try to sell that to Joe Plumber.