Bush Tax Cuts: To Extend or Not to Extend?

As the legislative session winds down, one more issue remains on the table (Well actually, there are a host of issues, but this is the one most people talk about), and that is whether or not to extend the Bush tax cuts. The Democrats believe they are an exclusive give-away to the rich, and have driven this country into the hole with its projected $2 trillion price tag over 10 years. Republicans contend that it helped the economy, and letting them expire would retard the growth of the economy. Essentially, Congress has until the end of the year to make up their mind, and if the last 18 months have shown us anything, they wont.
Before I delve in on this issue, lets look at the facts surrounding the tax cuts.
The Bush tax cuts did give the economy a boost. By lowering taxes, the retail industry was able to grow, and small businesses were able to expand because more capital became available to invest. In fact, each time tax cuts were enacted, federal revenue increased, sometime by as much as 30% over 5 years (roughly $1 trillion), because business growth led to more employees, which leads to more taxpayers. During the Bush years, federal revenues did not decrease until 2007, when the sub-prime mortgage crisis began. For 6 consecutive years, more money went into the federal coffers with each passing year. Renewing them could give the economy another kick start, and could increase job growth where massive spending projects such as the recent jobs bill, and the stimulus bill, have not.
However there are drawbacks. The tax cuts were meant for only 10 years, hoping that by 2010, the economy would be going up so that a tax raise would go through quietly because the small business sector would be making money at a rate that the bump would get covered up by the profits. It’s sleezy lawmaking, but that might have been going through a few congressmen’s minds, especially when it came down to winning Democrat support for the measure to pass. They are still expensive to keep, and the recent economic downturn has sapped the federal government of a good portion of its pre-crash cash stream, making it a real political hot potato so close to November. Getting rid of them could slice the deficit, and money could be re-invested into other spending projects, if you believe in the Keynesian theory of economics, which I do not.
This would be a great place for a compromise plan on the Bush tax cuts. Sure, Democrats and Republicans won’t get all that they want, but that’s a compromise: putting differences aside in place of agreements on stuff…something this Congress should know by now. Rep. Paul Ryan (R-Wisconsin) and Senator Ken Conrad (D-North Dakota) have started the process with what looks like a good solution that could have bi-partisan support. The proposal is to extend them for two years, thus reducing the cost by almost 80%, and allowing for cuts in spending to account for the difference. Sure, it isn’t the 10 years the GOP would like, and it goes against the “everything Bush did must be wiped out” mentality Democrats have, but it’s the best proposal we have, and should be discussed when Congress reconvenes in September (or when Nancy Pelosi has some burning union giveaway she must get done before going back to the People’s Republic of San Francisco). Then, re-evaluate the country’s economic position and go from there.
There is another solution that could be expanded upon. This is a golden opportunity for Republicans to roll out the “cut taxes, cut spending” proposals they have been hawking to a tone-deaf Democratic majority that will work. Extending the tax cuts for five years may cost close to $1 trillion, but the Democrats have spent nearly twice that already, and it can be paid for in these ways:
1. Liquidate the remained stimulus funds — $450 billion
2. Scale back some of the ObamaCare initiatives — around $300 billion
3. Reform entitlement spending (using Rep. Ryan’s ‘Roadmap to Recovery’) — around $500 billion.
Some of these figures are rough estimates, and there is probably more money being spent in these plans that can be cut out or delayed, but so far, you’ve got $1.2 trillion in savings right there, and we’re not even mentioning other cost-cutting proposals coming from the coalition of sensible Congressmen that actually stand up to Pelosi and Reid on behalf of their constituents (something Harry Reid certainly doesn’t know anything about). Thats enough to pay for the 5-year extension, reduce the negative impacts that ObamaCare will have on our wallets and our health plans, making entitlements more efficient, and theres still $200 billion left over, enough almost for a whole year extra.
Neither party will get their way completely, but the Ryan-Conrad proposal sounds like the idea that most resembles what I want to see happen to the tax cuts, and a proposal that should get bipartisan support if it isn’t watered down with union giveaways like the recent $20 billion bill that passed last week. For the Republicans, its their responsibility to bring it up, and keep bringing it up to the point the Democrats will have to listen and discuss. For the Democrats, it is their responsibility to actually listen for a change, rather than dismiss such plans as “right-wing radicalism”, then say the GOP is the “Party of No” (which at the rate the Democrats are wrecking the country is turning more into a badge of honor with each passing day).
Who knows? Maybe Congress can get something right for once. They probably won’t and wimp out, but at least there is someone in the House and Senate that wants to do something that will actually fix the country, without plunging us deeper into the hole.
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