Capitolism

Independent in All Things, Neutral in Nothing

Policy Implications of Ending the Bush Tax Cuts

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By Guest Blogger Ryan Berg

A debate is currently raging between Democrats and Republicans on Capitol Hill.  No, it is not financial regulation or healthcare reform—these debates seem ancient now, given the haste with which President Obama and Congressional Democrats are implementing their agenda.  This debate surrounds the expiring Bush tax cuts of 2001 and 2003.

If Congress does not act before December 31, tax rates will relapse overnight to their pre-Bush levels.  The top marginal income tax rate, for instance, would revert to 39.6 percent from 35 percent now, with commensurate increases in rates for lower income brackets.  Congress must also deal with the issue of the estate tax, which lapsed last year—fixed only by a piecemeal approach ending it for a year.  If Congress lets the estate tax expire, tax rates will increase to 55 percent for any estate worth more than $1 million.

It is also important to remember two things about the Bush tax cuts.  The first Bush tax cut passed in the wake of an inherited recession as Bush took office, while the second Bush tax cut was a stimulus response to a stagnant post-9/11 economy.  We can reasonably expect these tax cuts to help buoy the economic recovery in the next few years, as the Chairman of the Federal Reserve, Ben Bernanke, testified before the House Financial Services Committee.

This debate, not surprisingly, has profound implications—both political and philosophical—for the November midterm elections and beyond.  Even beyond the idea that it would be unwise—not to mention politically unpalatable—to raise taxes in a jobless economic recovery, this debate is about more than what constitutes “rich” and “what’s fair.”  Is it ever right for government to be entitled to more than half of a person’s income? What are the priorities of government and the nation? How should government handle this tepid economic recovery? What is the proper role and size of government? How should we properly control our current national deficit, both existing debt and our massive unfunded liabilities? All of these questions find themselves wrapped in the cloak of arguments for or against the Bush tax cuts.

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Written by Russell S.

August 24, 2010 at 1:14 pm

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