Some of former President George W. Bush’s most significant economic policies were his tax cuts. At the end of 2010, those tax cuts are set to expire; all tax rates will bounce back to Clinton-era levels. In this change lie the seeds for a political fight as heated and fervid as that which occurred over health care.
There are some areas of agreement, however. Both Republicans and Democrats agree that the tax cuts will be extended for the working and middle classes – those individuals making less than $200,000 and those families making less than $250,000. This is what President Barack Obama meant during his campaign when he promised not to raise taxes for those making for more $250,000.
It is on those Americans making above that number where the debate starts. Democrats want Mr. Bush’s tax cuts ended for the rich; Republicans want them extended. In making these arguments, both parties are guilty of a remarkable amount of hypocrisy.
Let’s start with the Republicans. Today, the Republican Party is passionately dedicated to reducing the deficit. Indeed, a central tenet of the Tea Party is to cut the enormous deficits produced in the past ten years. Much Republican opposition to the health care plan, and Mr. Obama’s presidency itself, bases itself upon rising national debt.
There is no better way to reduce the deficit, in the near term, than to allow the Bush tax cuts to end. This would literally save trillions of dollars in the future; a true deficit hawk would criticize Democratic plans to extend Mr. Bush’s tax cuts for the middle and working classes.
Republicans, however, have taken the opposite tact; they want the tax cuts extended to everybody. Deficit cutting apparently is less important than cutting taxes – a revealing hint about what truly drives the right wing.
Democrats are also guilty of massive hypocrisy. The economic policies of Mr. Obama are based, to a large extent, on the theories of one John Maynard Keynes. Mr. Keynes introduced the revolutionary theory of deficit spending during economic downturns. According to Mr. Keynes, a government should spend more than it takes in during a recession, to offset declines in private sector spending. Deficits are not important, in this view.
Personally, I have expressed doubts about the validity of this theory. Nevertheless, the prescription of Mr. Keynes constitutes economic orthodoxy. Much of the administration’s actions – from the economic stimulus to its spending efforts today – take from Mr. Keynes playbook.
Ending Mr. Bush’s tax cuts – even on only the rich – would go very much against his prescription. It would literally constitute a tax raise during the middle of a harsh economic recession. This is what President Herbert Hoover did during the Great Depression, and it is what Keynesians continuously crusade against. Some liberals argue that raising taxes on only the rich does less harm; my knowledge of economics is not quite strong enough to contest the details, but this sounds an awful lot like fanciful conservative claims that cutting taxes will lower the deficit (something which time and again has been proven not to be true).
Democrats justify their action as – believe it or not – designed to lower the deficit. In reality, ending tax cuts for the rich is part of their crusade, as a liberal would put it, to creating a more equal and fair society. Conservatives like to call this redistributing the wealth.
This is all fine and dandy – indeed, it is an agenda this individual would very much support – but now is not the time to implement it. A recession, especially of this magnitude, is a terrible time to raise taxes (even only those on the rich). Especially given the terrible July jobs report, in which 131,000 jobs were lost, these chances should not be taken. Mr. Bush’s tax cuts ought to be temporarily extended for everybody – rich, poor – until the recession is over and the jobs are back. That is the time to end the tax cuts on the rich.