Expiration of Bush tax cuts puts Dems in a pickle…

Everybody knows that the so-called Bush Tax Cuts are due to expire at the end on 2010.

Here’s the rub …

While Dems like to refer to them with the modifier “for the wealthy”, they touched all income brackets and, the bulk of the tax savings (in dollars) go to the middle and lower income earners.

So, letting the whole tax plan expire is a non-starter … violates Obama’s campaign pledges and delivers a staggering blow to the slow economy.

Conventional wisdom is that the so-called middle class cuts would be extended, but that the upper bracket cuts would be allowed to expire.

The problem: Would be more an act of politics than economics … would only dent the deficit (since most dollars are going to the lower and middle brackets) … and the dent assumes that upper bracket folks don’t change their behavior (i.e. by shifting income and assets).

For sure, the impact on the economy would be negative – since high earners consume disproportionately, and since some small businesses are lumped in the tax bracket. May not be a losing hand, but it sure isn’t a winner.

The other option is is renew the Bush Tax Cuts in their entirety for a year or two.


That would say that Bush was right all along … not good politics.

As Woody Allen would say:

More than any other time in history, mankind faces a crossroads.

One path leads to despair and utter hopelessness.

The other, to total extinction.

Let us pray we have the wisdom to choose correctly.

Woody Allen, Speech to Graduates, circa 1979

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Post inspired by: WSJ,  ‘The Bush Tax Increase’, August 31, 2010

One Response to “Expiration of Bush tax cuts puts Dems in a pickle…”

  1. TK Says:

    More “Joe the plumber” economics! Do you have any idea how much revenue a small business can create without forcing its owner into the top tax bracket? An owner can re-invest and hire to his heart’s delight if he wants to avoid exposing his hard-earned money to the government.

    The only thing more tired than the small business argument is the argument that the rich will simply stop consuming. What choice have they got? They can save at 0%, invest in government debt (at nearly 0%) or invest in riskier assets. Any of these choices would be good for the economy.

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