Often, prioritizing in politics can be difficult. But once in a while a nation finds itself in a position where what should be policymakers' first priority becomes crystal clear. Now is such a time, and the decision of whether or not to extend the Bush tax cuts is that issue. As the economic recovery struggles to keep its balance, there's nothing else nearly as important for Congress to consider at this time. Its failure to do so could only lead to disastrous consequences.
The longer Congress waits to make its decision, the more economic uncertainty will affect the anemic recovery. Since May, wealthy Americans, in particular, have decreased their discretionary spending by 25%. This is likely due in part to fears that taxes will be increasing next year. Tax hikes are also likely beginning to affect end of year decision making for early 2011 expansion for small businesses. But the cuts may be extended for everyone, making such fiscal cautiousness unwarranted.
There's also a simply logistical problem. The tax rate hikes may temporarily hit all Americans in early 2011, even if Congress extends the cuts after the November elections. As an article from Bloomberg noted on Friday, the IRS won't be able to revise withholding changes quickly enough if the legislation is passed at the last minute.
Some members of Congress, progressive Democrats in particular, would probably prefer to wait until after elections to vote on extending the Bush tax cuts, for purely political reasons. The vote is sort of a no-win situation for Democrats. If Republicans block efforts to exclude the rich from the extension, then Democrats may be forced to push the cuts through for all Americans. This will result in a situation where moderates will likely find it more convincing that Republicans deserve credit for forcing Democrats to push through the extension, while the Democrats' base becomes angry that its party didn't play tougher and demand the rich pay.
Yet it's pretty safe to assume that one of two outcomes will occur here. Either the cuts will be extended for everyone (probably temporarily), including "the rich," or they will be allowed to expire for everyone. Unless progressive Democrats have some impressive trick up their sleeve this is a battle they can't afford to fight. If Republicans and moderate Democrats call their bluff and prevent legislation from advancing if it doesn't include wealthier Americans, then the progressive Democrats will have to go along.
Almost no one believes that the economy will be better off in the short-term if taxes are raised on the lower- and middle-classes. And if the economy gets even worse, then the Obama administration will be in even hotter water in 2012. Moreover, most voters probably won't find blaming Republicans for the take hike very plausible if the progressive Democrats refuse to extend the cut to everyone. If the Republican Party can be said to rally around and unite on any issue, it's lower taxes.
And really, extending the cuts temporarily to wealthier Americans doesn't have much downside. It will be a more expensive option, at around $70 billion more per year. But most economists think a full extension would be the best option open to Congress.
Considering the urgency, Congress needs to put aside any other legislation it's working on and take up the issue of whether to extend the Bush tax cuts as soon as possible. Since it's hard to imagine that the battle could end without the cuts being extended for at least the lower- and middle-classes, the economy would be much better off if Washington eliminated the uncertainty. As mentioned earlier, tax cuts are just about the only viable option that Congress has left to attempt to stimulate the economy. It should act.