Why have the Bush tax cuts not been reversed?

[trumptman]

Democrats Prosperity Problem (http://www.realclearpolitics.com/articles/2007/06/democrats_prosperity_problem.html)

Will recounts some very good news on the economy for the hypochondriacs among us. I've predicted economic downturn myself for 2008 and those who preach that is continuously bad, much like a broken clock, will be be right eventually.

That said, we've heard many a person who is to the left politically on here decry the very inequitable (for the rich) and expensive tax cuts that Bush and the Republican Congress managed to push through. They increased their harping on this when war costs became necessary and no "sacrifice" was called for by Bush to pay for those costs.

Will does a nice job of summarizing the tax cuts that expire in 2011.

The five income tax brackets (10, 25, 28, 33 and 35 percent) will be increased 50, 12, 10.7, 9.1 and 13.1 percent, respectively, to 15, 28, 31, 36 and 39.6 percent. The child tax credit reverts to $500 from $1,000. The estate tax rate, which falls to zero in 2009, will snap back to a 60 percent maximum, and exemptions that have increased will decrease. The capital gains rate will rise, and the marriage penalty will be revived, as will the double taxation of dividends.

The issue, Democrats have given Bush his war funding, they have declared they will undertake responsible spending, they've decried the widening gap between the rich and poor, and they could end these tax cuts now.

So why haven't they? Isn't even criticism that was applied to the Republican Congress appropriate if the Democrats could take action and instead decide to let the clock run out?

Nick

(An aside, one of my little larks is noting how taxes on the "rich" almost always become taxes on just about everyone. George Will does a good job of noting this with the AMT)

[SDW2001]

Democrats Prosperity Problem (http://www.realclearpolitics.com/articles/2007/06/democrats_prosperity_problem.html)

Will recounts some very good news on the economy for the hypochondriacs among us. I've predicted economic downturn myself for 2008 and those who preach that is continuously bad, much like a broken clock, will be be right eventually.

That said, we've heard many a person who is to the left politically on here decry the very inequitable (for the rich) and expensive tax cuts that Bush and the Republican Congress managed to push through. They increased their harping on this when war costs became necessary and no "sacrifice" was called for by Bush to pay for those costs.

Will does a nice job of summarizing the tax cuts that expire in 2011.

The five income tax brackets (10, 25, 28, 33 and 35 percent) will be increased 50, 12, 10.7, 9.1 and 13.1 percent, respectively, to 15, 28, 31, 36 and 39.6 percent. The child tax credit reverts to $500 from $1,000. The estate tax rate, which falls to zero in 2009, will snap back to a 60 percent maximum, and exemptions that have increased will decrease. The capital gains rate will rise, and the marriage penalty will be revived, as will the double taxation of dividends.

The issue, Democrats have given Bush his war funding, they have declared they will undertake responsible spending, they've decried the widening gap between the rich and poor, and they could end these tax cuts now.

So why haven't they? Isn't even criticism that was applied to the Republican Congress appropriate if the Democrats could take action and instead decide to let the clock run out?

Nick

(An aside, one of my little larks is noting how taxes on the "rich" almost always become taxes on just about everyone. George Will does a good job of noting this with the AMT)

Well, clearly they won't end them now. They may let them expire though, particularly if a Democratic President is elected. And the result will be precisely the opposite of what they claim: An assault not on the rich, but on the middle class. The rich will suck up their burden or "creatively account it" away. The middle class will se their rates rise right off the bat, by 10-15%, and they'll be affected by the CGT increase, child tax credit, and possible changes to depreciation-based deductions.

In other words, it will effect homeowners and higher income renters in middle America, particularly those with children. We've seen no real proposals from the Dem side of the aisle to actually help the middle class, only anti-"rich" rhetoric. How about much larger deductions for college tuition? How about what RG proposes with health insurance deductions of $15,000 a year? What about specific proposals to kick up the top two brackets and lower the others (not that I agree with that, but...)?

Of course we don't hear those things. We hear broad sweeping rehtoric about "distributing wealth evenly." I agree with Will. Things are never distributed evenly. That guarantee is not what our system is based on. I'd have much more respect for the Dems if they focused on equality of opportunity with specific proposals to improve public schools, for example.

[trumptman]

Perhaps they won't but if they did, they could gain massive credibility and perhaps even toss off that whole weak on defense bit.

First, it can give them massive economic credibility, but they have to let it flow both ways. It is very clear that tax cuts stimulate the economy and also clear that tax increases can slow the economy.

The real issue here is that right now we need to slow the economy. You and I had a discussion in the past about the Fed rate and its future direction. Inflation has not yet abated, even though the fed has raised rates as much as it seems foreign investors and the market wants to tolerate. The hope, never any real talk from the fed, but hope from lunatics about a fed rate cut is completely off the table. Meanwhile the possibility of more rate hikes is very real because inflation just hasn't dropped.

Also higher interest rates make credit less democratic in its distribution. It makes liquidity harder for the lower classes and makes investment returns harder to obtain.

So how do you slow the economy, keep interest rates from rising higher, support the troops by giving them their funds and also likely end up balancing the budget?

You raise taxes.

All deficits predicted from the tax cuts ended up being smaller than initially projected. This says that regardless of all the bad math because no matter what side of the political spectrum the projections are way off, the ideal behind the laffer curve holds merit. The amount of energy and economic activity unleashed from tax cuts is always disproportionate to the actual rate of cut. This also gives them room to be tax cutters in the future when the economy does need a boost.

That said, the Democrats could do themselves some serious favors here if they addressed these tax cuts now.

First, no need to justify votes for troop funds, you've asked for American sacrifice, you've paid for them and you've given the people in harms way the money and equipment they need.

Second, you'll likely watch the budget deficit disappear while slowing the economy at a time it is needed. This gives fiscal credibility. It keeps rates low which helps everyone. It gives you the rhetorical edge because you dinged Bush for giving all the tax cuts to the rich, and now you can claim to have grabbed that money back to help fight terrorism, etc.

You get to claim you have made things more equitable and fair, a big Democratic selling point.

Balancing the budget helps make decisions on Medicare and Social Security reform easier to address.

I really think they ought to go for it.

Nick

[BRussell]

Yeah, they'll just let the tax cuts expire, as Bush and the Republicans wanted when they passed the original tax cuts.