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The Late Great Tax Debate

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We have embarked upon a debate over how to handle the looming prospect of George W. Bush's cuts to marginal tax rates being sunsetted as of December 31, 2010. This debate, like all debates, has two opposed arguments. There is the Democratic Party's argument that goes unarticulated, and there is the Republican Party's argument that is made up from whole cloth and designed to deceive.

The Democratic argument, despite its dearth of publicity, is straightforward and easily explained. The Bush tax cuts are due to expire at the end of the year. Democrats wish to extend the tax cuts for Americans earning less than $250,000 per year. That would be 98% of American workers keeping that tax cut.

The Republican argument is somewhat more complex, as in, "Oh, what a tangled web we weave when first we practice to deceive." I'll try to break it down, though.

Republican Claim #1: Any tax cuts that are not extended constitute an Obama tax increase. Actually, any tax cuts that are lost will be because Bush Republicans voted to allow it to happen. These tax cuts, that they don't think they have to pay for, were originally passed by what they have so recently maligned in the Senate by using the budget reconciliation rule. Since the bill was scored as a drain on the Treasury, it was, according to the rule, subject to a ten year sunset provision. That means that the tax breaks ending are an integral part of this Republican bill, so any "tax increase", if it must be labeled as such, would be a Republican tax increase.

Republican Claim #2: If taxes go up on the top two percent of earners, they will stop hiring and investing, resulting in stunted job creation. Hmmmm. There's one where we can consult the historical record for guidance. During the eight years of the Bush administration (when the Bush job creating tax cuts were passed) the economy of the United States added a net 1,950,000 jobs. This was less than 10% of the rate at which jobs were added to the economy during the eight years of his predecessor's administration.

The Clinton administration added 22,744,000 jobs to the economy. One may argue that the Clinton years saw a high tech bubble that enhanced hiring in that economic sector, but one would have to acknowledge that the Bush years had the housing bubble to help them. Jimmy Carter's administration presided over the addition of 10,500,000 jobs in four years, so what are the Republicans crowing about?

We may safely conclude that the highly touted job creating power of these tax cuts is nonexistent, at least on these shores. It seems that Chinese employment rates did pretty well during Bush's administration.

Republican Claim #3: Allowing the Bush tax breaks to lapse will hurt small businesses that do most of the job creation. Perhaps it will, but it won't be many, and we can expect that they won't be hiring, even if they keep the tax breaks.

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It is expected that three percent of small businesses will be affected by the return to Clinton era tax rates on the top two percent of Americans. Those are the sorts of small businesses that hire only office staff and a few assistants to be fully staffed. You know the sort of professionals that these are. They are hedge fund operators, high-powered lawyers in private practice, plastic surgeons and other medical specialists, and, of course, the guys we feel sorriest for, lobbyists. The latter are crawling all over Washington, D.C. right now trying their damnedest to preserve their own privilege.

Republican Claim #4: They're trying to take away tax breaks from the top two percent. That, again, is wrong, however loudly they articulate it.

If the tax breaks are to expire on the top marginal rate (over $250,000 in annual earnings) they will still get some tax relief. The first $250,000 of adjusted gross income will enjoy the reduced rate. That means that a taxpayer earning $500,000 per year will get the same savings in terms of dollars as a guy making $249,000 per year. That's if he doesn't have an accountant or tax lawyer that winnows his income down to something far less. That would be rather more than I stand to get.

The same thing would be true of every taxpayer in the land. Whether they make $250,001 or $100,000,000 per year, like a health insurance CEO might, they get the same break on the first $250,000 in adjusted gross income.

Then too, the income over that first $250,000 of adjusted gross income will be taxed at only a four percent higher marginal rate than with the Bush tax cut.

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Republican Claim #5: You don't have to pay for existing tax cuts. Well, Republicans would certainly like to try not to pay for them. In that vein, they have floated a number of schemes to work around paying for them. One scheme was to pay for them with the remaining stimulus funds, effectively canceling the Obama tax relief to the middle class that is contained in that legislation and throwing thousands or hundreds of thousands out of work so rich folks can have a little pin money. Of course, there aren't enough stimulus funds left to cover the three trillion dollars that the top 2% tax cuts would cost.

Senate Minority Leader, Mitch McConnell, has proposed extention of all of the Bush tax cuts along with an estate tax cut to the richest quarter percent of Americans with the total tab coming to four trillion dollars. He proposes a 300 billion dollar spending freeze to pay for it. This effort has earned him the Ronald Reagan Chair in Moonbat Mathematics at Glenn Beck University. He also plans to introduce legislation to prevent any tax rates from rising, which Harry Reid should use to cushion his Majority Leader's seat.

Social Security privatization is another route by which they figure to snatch around two and a half trillion dollars that still wouldn't be enough.

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I am a lifelong resident of the Chicago suburbs, with a several year hiatus to serve in the Navy when my Vietnam era draft notice turned up. I had been told that guys with last names like mine were among the preferred cannon fodder in the Army, so (more...)
 

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