It feels as if Americans have been having the same argument for the entire time I've lived here. Very broadly speaking, one side wants to cut taxes to reward work and starve the beast of government; the other is too afraid to raise taxes but won't cut spending either. The Bush era combined the worst instincts of both: Bush cut taxes and spent us into a debt that made climbing out of this recession close to fiscally impossible without serious risk of default. Somehow, Obama has managed to prevent the worst from happening - and is being blamed for it. And so we look ahead to the question of letting the Bush tax cuts - a huge contributor to the debt - expire. Should we? Howard Gleckman asks:
Would raising [taxes on the top tax bracket] be a job-killer? That is less clear. Some research suggests that higher tax rates actually encourage small business formation. Why? Because these firms allow their owners to shelter lots of income, behavior that is more lucrative when rates are higher. Other research suggests that higher rates do retard investment and hiring by existing firms. Donald Bruce and Tami Gurley-Calvez, who study small business for the Hudson Institute, have written a nice review of all these issues.
While we are not certain about what higher taxes will mean for small business, we know these firms will suffer if they are unable to access capital. And to the degree that ever-greater government borrowing makes it harder for these firms to raise money, they and their employees will pay a price. That is the other consequence of keeping taxes low for high earners, which will cost nearly $700 billion over the next decade.
It seems to me that unless the GOP backs hefty cuts in Medicare and defense, they cannot possibly claim to be fiscally conservative while opposing the end of the tax cuts. Of course, that won't stop them. But how they can claim intellectually that supply side economics still works is beyond me. If this debt doesn't prove them wrong, what would? Increasingly, I believe that opposing this supply-side nonsense is critical to restoring a sane conservatism. You know: like in the UK.