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Friday, March 02, 2012

"Democrats and the Bush Tax Cuts"

Busy day, so just a few quick words in response to James Kwak's post "Democrats and the Bush Tax Cuts." He wonders why I suddenly embrace tax cuts, even if it's for lower income households. In response to the post below this one he says, among other things:

To me, his post is evidence that many Democrats think that most of the Bush tax cuts were and are a good thing. This confuses me. When did we become the party of tax cuts?

I do not think the tax code is progressive enough (and that remains true even if we allow all tax cuts, which benefitted the wealthy the most, to expire). If we tilt the distribution toward more progressivity first, and then lift the entire distribution to address any remaining buget problems, that's better than doing it the other way around. That is, if the first step is to let all the Bush tax cuts expire returning us to the unsatisfactory levels of progressivity we had in the past, and then we try to increase progressivity as the second step, then it's much less likely that the second step will actually happen. It may not happen in any case, but I think the first scenario improves the odds.

So before doing anything else -- while the "we have to close the budget gap" iron is still red hot -- I'd like to see the tax code made more progressive than it was before the Bush tax cuts. Then, if and when that is achieved, fight to preserve the progressivity (as well as social programs) as taxes are raised more generally to try to get the budget on stable footing.

One other point -- I'm also more worried about bumps on the road to recovery than many others appear to be, and maintaining the stimulus we have -- however imperfect it was in design to begin with (i.e. too many tax cuts, not enough spending and too small overall) -- is important. We need the insurance, however meager it might be. Allowing top end tax cuts to expire is much less risky than allowing all tax cuts to expire. So if the deficit hawks need red meat, toss them high end tax cuts for now and put off the rest, to the extent possible, until the economy is on better footing.

    Posted by on Friday, March 2, 2012 at 04:05 PM in Economics, Income Distribution, Taxes | Permalink  Comments (18)

          


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