The Bush tax cuts of 2001 will expire at the end of the year. The cuts came with a 10-year sunset provision to gain the votes needed to pass them.
Republicans in Congress have regularly sought to make the cuts permanent — without offering a way to replace the billions the cuts take from the budget every year.
President Barack Obama has said he favors allowing the cuts which primarily favor the rich to expire, while making permanent those that favor the middle class. His secretary of the treasury, Tim Geithner, agrees.
Sec. Geithner also believes the estate tax should be restored at a modest level with a high deductible, that capital gains taxes should go back to 20 percent from the current 15 percent, and that the upper bracket maximum should go to 39.6 percent from the current 35 percent. Doing so, he said on ABC Sunday, would “show the world that the U.S. is willing as a country now to start to make some pro-gress” toward reducing long-term budget deficits.
Geithner said he didn’t think restoring the upper bracket to 10-year-ago levels would slow the economy. The increase, he re-minded the TV audience, would be felt only by the top 2 to 3 percent of the nation’s earners.
Republicans countered that these rate restorations would actually amount to the “largest tax increase in U.S. history.”
If they have their numbers right, they have made a devastating criticism of U.S. tax structure. If making the small increases in current tax rates that are proposed would be the largest tax increase in history, that only shows what a huge portion of the na-tion’s annual wealth is earned by so small a percentage of the population.
It is difficult to argue that allowing the rates to return, in part, to the levels of Bill Clinton’s administrations would slow the U.S. or world economies. While no 10-year period in any country’s history is exactly the same as the next or the previous decade, surely some lessons can be learned from the Clinton years.
Congress and President Clinton raised taxes in his first term. What followed was an economic boom. Those good times combined with a higher tax rate allowed the budget to be balanced for the first time since Dwight Eisenhower was president and actually created a surplus.
What this sequence of events proved beyond argument is that tax increases do not cause economic slowdowns.
Nor does one have to be a socialist to also conclude that increases in tax revenue can help balance a national budget and create a surplus.
RESTORING THE U.S. tax structure to pre-Bush levels — as Congress promised to do in 2011 when it passed the tax cut bill in 2001 — would keep faith with the American people and make a start toward bringing the budget under control. If the tax cuts are extended, on the other hand, budget deficits in the future will be far worse than are now projected, because today’s projections took Congress at its word and are based on the expiration of the cuts come January.
In addition to restoring the income tax rates to those which produced a balanced budget in 2000, the estate tax should be reinstated — there is none at present — at a reasonable level, and serious thought given to using the income tax to take away all incentive to give or to receive multi-million-dollar bonuses such as are now passed out so freely to U.S. financial traders, financial industry executives and other business executives.
Only a few years ago the ratio of pay of a company CEO to a production worker in the firm was 30 to 1. Today in large U.S. corporations that ratio ranges from 300 to 500 to 1. That is morally wrong and economically unsound. It can be stopped cold with tax policy. Ten-figure bonuses to financial traders are even more egregious and played a significant part in the credit collapse that triggered the recession of 2008.
While we’re fixing, let’s fix it right.
— Emerson Lynn, jr.
