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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

December 17, 2010 at 10:00 AM

Pay no attention to the risks behind the tax-cut curtain

President Obama and any real liberals in power have folded like a cheap suit on extending the Bush tax cuts for the wealthy. Now they are trying to spin it as a second “stimulus.” We’ll see. The Bush tax cuts, targeted to benefit the richest Americans, produced few jobs. There’s little evidence the money went into creating productive new enterprises here, even as the wealthiest Americans gained an even bigger share of national wealth.

It was disingenuous to characterize the expiration as a “tax increase.” The original Bush plan was sold as a 10-year deal. If anyone ever wanted certainty, this was it. And, remember, Obama never intended to let the tax cuts on the middle class expire. The reduced rates on high earners would have remained the same as well, up to $250,000 — at earnings $250,001 and beyond, the old Clinton rate would have applied. But the “tax increase” meme is a brilliant tactic, too. Thus, taxes can never go up, only down. And notice how the deficit hysteria has gone away now? Yet all the money to pay for this $801 billion “stimulus” must be borrowed in an unsustainable fiscal trap.

Advocates of maintaining the Bush rates further maintained that it’s bad policy to “raise taxes during a recession.”

The risk of tinkering with tax rates in a recession is a perfectly legitimate argument. But it admits we’re still in a recession. And begs the question as to why tax rates that are lower even than during the Reagan years haven’t made the supposed recovery more robust? The Social Security “payroll tax holiday” seems fraught with mischief, ammo for those who want to weaken the program. President Reagan, recall, raised payroll taxes to strengthen Social Security. He did this in a bi-partisan deal and amidst an uncertain recovery.

Meanwhile, state and local governments continue to slash services and jobs, not only because of revenue lost from the recession but 30 years of anti-tax religion. Your tax cuts at work, worsening the downturn. Whatever their love of tax cuts, locally or nationally, Americans are addicted to government services, American corporations depend on corporate welfare and few want to discuss costly military adventures.

So it’s a second “stimulus.” In their way, Iraq and Afghanistan (and Yemen, Pakistan, etc.) are stimulus, too. On borrowed money. Borrowing to build new infrastructure, better universities and schools, and to seed advanced industries is likely to more than repay its costs. We’re not doing that, with ominous consequences for the future. Instead, a hope and a prayer that most Americans will use their meager tax relief to “consume” more, and the very rich will behave differently than they have for the past 10 years.

Today’s Econ Haiku:

Like the AFLAC duck

Politicians quack, “tax cuts!”

What about the bill?

Comments | More in Tax policy


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