Republicans Seek to Make Bush Tax Cuts Permanent

While Republicans seem to have at least temporarily backed off efforts to pass new and costly tax cuts, including a reduction in the capital gains tax, there is renewed talk about making permanent the Bush tax cut, which is slated to expire at the end of 2010.

Sen. Charles Grassley (R-IA) issued a statement outlining his priorities as the new chairman of the Senate Finance Committee, the position he will reclaim from Sen. Max Baucus (D-MT) in January when Republicans will be the Senate's majority party. Grassley, quoted in BNA, said that he intends to work to make last year’s $1.35 trillion tax cut permanent because tax cuts “help taxpayers across the board with child care, rate cuts, education incentives, and retirement savings incentives [and they] help to create jobs.”

On the other hand, this report from Citizens for Tax Justice reveals the Bush tax cut to be much less evenly distributed across income levels, primarily benefiting the very wealthy. Potential new tax cuts could make matters worse, and have negative effects for decades to come, resulting in:


  • Insufficient resources to address national priorities, including security, education, health care, human needs, and the wide range of quality of life issues that are important to everyone, as well as public health, safety, and the environment.


  • Increased income and asset inequality. Paul Krugman, in an Oct. 20 article in the New York Times Magazine, warns of a new plutocracy, quoting Kevin Phillips’ conclusion in Wealth and Democracy that, “Either democracy must be renewed, with politics brought back to life, or wealth is likely to cement a new and less democratic regime—plutocracy by some other means.” More tax cuts to the wealthy are a giant step in this direction.


  • A weakened federal government that is unable to provide the services the market cannot supply; assist the states in difficult economic times; address big issues that require federal solutions; respond to national emergencies; promote safe and livable communities; maintain our national parks and public libraries; and ensure that all children, not just those of wealthy parents, receive a quality education.

So what do the election results mean for future tax cuts?

While Congress and the executive branch are now under Republican “control,” that is an overstatement. It will still be difficult to advance tax cuts, and they are far from a foregone conclusion. This is especially true in the Senate, where the power of the filibuster and the budget rule (recently extended until April 2003) requiring a 60-vote supermajority to pass tax cuts remain powerful protections. As one example, our analysis of the post-election prospects for estate tax repeal shows that the new Senate will still lack from one to three votes to pass permanent repeal of the estate tax. Moreover, Congress passed the Bush tax cuts when the federal government was running a budget surplus, the economy was strong, and we were at peace abroad. This situation, key to securing congressional support, has changed considerably:


  • The economy continues to struggle, with the unemployment rate up to 5.7 percent at last count. Both parties agree that we need economic stimulus. Granted, the right kind of stimulus is still in dispute, but there should be room for compromise. To do any real good, stimulus efforts need to be fast, putting money in the hands of people who will spend it. Tax cuts that mostly benefit the wealthy (who are less likely to spend) or permanent long-term tax cuts down the road won’t accomplish this goal. A mix of short-term measures to stimulate the economy, with some goodies for each side, could benefit the economy and the people who most need some help.


  • Most states are struggling with deficits that must be balanced. This will likely result in cuts in services, especially to their most vulnerable residents. Also, state cutbacks also have a big negative effect on the ability of the national economy to recover from the economic slow down. The failure of the federal government to provide some revenue to assist states not only means cuts in services to people but also inhibits our economic recovery.


  • With the predicted deficits, fiscal conservatives on both sides of the aisle should find some common cause in refusing to further increase the deficit with more tax cuts. At the same time that the president and his team in Congress are pushing to accelerate the phase-in of last year’s tax cut and making it permanent, Bush is also warning that “Congress must show fiscal discipline” as it reconvenes this week to complete work on the remaining 11 FY 2003 appropriations bills. It is not clear how Congress can reconcile these conflicting messages. We can’t have it all, as the effect of the Bush tax cut on the once huge federal surplus reminds us.


  • The war against terrorism, increased need for domestic security, and costs of the new Homeland Security office all bring huge costs. People are willing to make sacrifices in tough times and tax cuts, especially for the wealthy, make little sense to many people under the circumstances we are facing.


  • As the still-unfinished appropriations process for 2003 has made clear, cutting spending to the point where there isn’t enough money to fund important government services and programs that have broad public support just leads to a stalemate. Further reductions in available resources when there is not enough money to even adequately fund the services that everyone supports is counterproductive.

Instead of tax cuts for the wealthy, the need for economic stimulus is paramount. A variety of ideas have been raised, including an extension of unemployment benefits, a tax “rebate” for low-income people (who missed out on the last rebate), a temporary lifting of payroll taxes for low-wage workers, emergency revenue sharing for the states, and short-term investment credits for business. Unlike tax cuts for the wealthy, bipartisan cooperation around these issues seems possible.

Additionally, there are steep trade-offs between tax cuts and other national priorities. Besides the importance of adequate resources to meet current needs, addressing future needs through education, job training and employment supports, affordable health care, and improvements in infrastructure lay the necessary foundation for our long-term productivity and economic growth. More tax cuts for the wealthy will make this impossible.

In short, there are good affirmative arguments with which to counter the "more tax cuts no matter what" mantra.

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