« links for 2010-10-29 | Main | "How Immigrants Create More Jobs" »

Saturday, October 30, 2010

"White House Considering 'Decoupling' Top-Tier Tax Cut"

The administration is considering a new strategy on extending the Bush tax cuts:

White House considering 'decoupling' top-tier tax cut, by By Lori Montgomery, Washington Post: With Republicans poised to gain ground in Tuesday's elections, the White House is losing hope that Congress will approve its plan to raise taxes on the nation's wealthiest families and is increasingly focusing on a new strategy that would preserve tax breaks for both the wealthy and the middle class.
According to people familiar with talks at the White House and among senior Democrats on Capitol Hill, breaking apart the Bush administration tax cuts is now being discussed as a more realistic goal. That strategy calls for permanent extension of cuts that benefit families earning less than $250,000 a year, and temporary extension of cuts on income above that amount.
The move would "decouple" the two sets of provisions, Democrats said, and focus the debate when tax cuts for the rich expired next year or the year after. Republicans would be forced to defend carve-outs for a tiny minority populated by millionaires, an unpopular position that would be difficult to advance without the cover of a broad-based tax cut for everyone, aides in both parties said. ...
The battle over taxes will be reengaged when lawmakers return to Washington in mid-November. If Congress fails to act before the end of the year, virtually every taxpayer will see increased withholding take a bite out of their paychecks in January.
Democrats had hoped to deal with the issue before the election but could not agree on a strategy. ...
While advocating permanent extension, Republican leaders have said they would accept a two-year extension of all the cuts.
Administration officials said they have begun plotting strategy for the lame-duck legislative session but declined to comment on decoupling or another idea floated in recent weeks: embracing tax breaks for the rich in exchange for Republican support for additional economic stimulus.
The stimulus could take the form of Obama's proposal to provide additional business tax breaks, which the president touted Friday... Or it could take the form of an extension of Obama's signature tax break for the middle class, Making Work Pay, which is scheduled to expire in December, congressional aides said.

Why does decoupling and fighting over one versus two years draw a sharper political contrast than decoupling and arguing over zero versus one? Republicans have every intention of making the tax cuts permanent in any case, they're just trying to delay the main battle until they have a better chance of winning. Democrats have misplayed this.

Also, notice how the talk of additional stimulus from the administration is now entirely about tax cuts? Additional spending, which would have a larger and more certain effect on aggregate demand and employment, is not even mentioned. Talk about giving up without a fight.

And what kind of deal is "We'll trade tax cuts for the wealthy for tax cuts for business and the middle class" anyway? That sounds like the path to making the tax cuts for the wealthy permanent. There's no need to trade. Put tax cuts for the middle class and businesses to a vote and dare the party that has never seen a tax cut it doesn't like to vote it down.

    Posted by on Saturday, October 30, 2010 at 01:24 AM in Economics, Fiscal Policy, Politics, Taxes | Permalink  Comments (52)


    Feed You can follow this conversation by subscribing to the comment feed for this post.