Reversing (All) the Bush Tax Cuts

Conservative Democrats are wondering whether it makes sense to raise taxes on high-income households next year. You recall that the Bush tax cuts are due to expire in 2011. The administration wants to extend them for most Americans, but not for those making more than $250,000.

This week, Kent Conrad of North Dakota, chairman of the Senate budget committee, joined fellow Democrats Evan Bayh of Indiana and Ben Nelson of Nebraska in saying that the tax cut expiration for high-income earners should be delayed in the light of the weak economic recovery.

Tim Geithner is unimpressed. He has affirmed the administration's preference to let taxes on high incomes go back up, and said a wider reform was planned. A wider reform would certainly be good -- the system needs it desperately -- though one wonders what a Republican-controlled House would make of the idea.

Meanwhile I'm still hoping that Martin Feldstein's proposal -- extend all the tax cuts for 2011 and 2012, then reverse all of them the following year -- might catch on. This would not supply all of the needed short-term stimulus or all of the needed long-termĀ  tightening, but the sign is right in both cases.

To agree to this, Obama would have to break his promise not to raise taxes on the middle class (sooner or later he will have to break it anyway). Congressional Democrats would have to let high earners off the hook for two more years (they could concentrate on the idea that if the Bush tax cuts were so reckless and irresponsible, there is much to be said for canceling them all). Republicans would have to drop their idiotic opposition to any and all tax increases under any and all circumstances.

It's a tall order, in other words. Sad if politics rules out such a simple and sensible idea.