Here Comes the Debate Over Letting Tax Cuts Expire

The Democratic case, the Republican case, and some strategizing from both sides

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On Sunday, Treasury Secretary Tim Geithner appeared on This Week to discuss what The New York Times declares will be Washington's "next big battle"—the expiration of Bush-era tax cuts. The Obama administration is leading a Democratic move to let the cuts for the upper tax brackets expire, extending the cuts only for families and individuals earning less than $250,000 and $200,000 a year, respectively. Secretary Geithner says this expiration will not hurt the struggling economy. Republicans beg to differ. Their respective arguments for and against, plus some handicapping of the political battle:

  • Cuts Disastrous and Disingenuous by Design, argues The Washington Monthly's Steve Benen. The point of the later expiration date, originally, "was to obscure the cuts' cost, play a dangerous budget game, and make it so that the GOP wouldn't have to pay for their own experiment ... Every time Republicans complain,"  he continues, "the same answer should come to mind--it was their idea for the cuts to expire." It was also the deficit they left, he argues, that makes the expiration necessary. Finance blogger Barry Ritholtz agrees about the inadvisability of a "sunset provision" when it's being "used to obscure how much tax cuts actually cost: " If you really want permanent tax cuts, well, then you should pass, um, permanent tax cuts. And if you cannot sell an expensive tax cut to the public, perhaps that might be telling you something." That said, he thinks the original cuts made sense as a recession policy—they just should have expired earlier if they were really supposed to be temporary recession policy.
  • Sort of Like the Republican Fiscal Platform, grumbles the Financial Times' Martin Wolf. "Supply-side economics" was transformational for Republicans, and "allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?" The key was that "it allowed conservatives to ignore deficits. They could argue that, whatever the impact of the tax cuts in the short run, they would bring the budget back into balance, in the longer run." That winds up leaving Democrats in a bind over raising taxes, while leaving the country as a whole in a bind over fiscal discipline.
  • Hang On: These Cuts Weren't That Big  True, admits Cato's Chris Edwards: "extending all the 2001 and 2003 tax cuts would lose the government about $216 billion a year in 2012 and rising amounts after that." But "in a rough sense, spending increases have had a nine times greater impact on our changed budget situation since 2001 than have tax cuts." Then, too, "the Bush tax cuts were small compared to the Reagan tax cuts of 1981."
  • Also, Can You Blame Republicans?  "Today's political and economic climate makes Republicans' tax-cuts-only philosophy uniquely alluring," points out The Atlantic's Derek Thompson. "First, Republicans are in the minority in government, and their political incentive is to oppose the majority party in Congress and the White House. Second, the weakness of the economy undercuts the argument for short-term tax hikes, anyway. Third, cheap borrowing costs on US debt hurt the argument for quick budget fixes. A moment of sympathy for the GOP: where in this picture do you see the incentive to call for higher taxes?"
  • The Voters Certainly Won't  At the polls, citizens "will have a clear choice between tax cutters and tax hikers," writes the conservative magazine Commentary's Jennifer Rubin. "There isn't any way to fudge the answer for those on the ballot. For or against a big tax increase?"
  • Actually, Maybe They Will  The New Republic's Jonathan Chait thinks he's found a way for the Democrats to get everything they want out of this. Ultimately, he argues, neither party really cares about the tax situation of the middle class. Republicans only toss in the middle class tax cut to make the cut for the wealthy politically palatable. "Democrats might prefer a more progressive tax code with lower middle-class taxes, but most of them would rather have the revenue instead." They're only for the middle-class cut because they "promised not to raise taxes on people earning less than $250,000 a year." So here's what Democrats should do, Chait says, in order to let the cuts expire and gain political points at the same time:
They can pass an extension of the middle-class Bush tax cuts through the House. If Republicans let the bill pass, then they've lost their leverage to extend the unpopular Bush upper-income tax cuts. If they filibuster it, then Democrats can blame them for raising taxes on middle-class Americans. It would let Democrats out of their pledge ... Then nothing would pass, and we'd instantly revert to Clinton-era rates across the board.
This article is from the archive of our partner The Wire.