Thursday, August 5, 2010

Soak the rich? Not now -- Aug. 5, 2010 column


During the 2008 campaign, three little words summarized the Democrats’ plan for George W. Bush’s expiring tax cuts: Soak the rich.

Candidate Obama promised to keep lower tax rates for middle-class Americans while raising taxes on families making more than $250,000 a year. Life was simpler than.

President Obama remains firm on letting the tax cuts expire for the wealthiest taxpayers Dec. 31, but some Democrats, along with congressional Republicans, are balking.

A spirited tax debate on Capitol Hill likely will commence next month, just as midterm campaigning hits its stride.

In this election year, with most Americans less than confident about the economy, raising taxes is hardly a way to win votes. But if Congress does nothing, taxes on personal income, dividends and capital gains, and estates will rise to 2001 levels come January.

So, get ready for some fancy rhetorical flourishes as politicians in both parties explain why raising anyone’s taxes – even the richest among us – would be a huge mistake.

Once again, blame the economy.

“I don’t care if it’s the wealthiest of the wealthy, you don’t raise their taxes” during a recession, Rep. Bobby Bright, D-Ala., told The Hill newspaper. Rep. Gerry Connolly, D-Va., also a freshman, said that the economic recovery is so fragile, tax rates should remain where they are.

“People in the upper tax brackets have a huge impact, a disproportionate impact, on consumer spending,” Connolly told The Hill.

A sleeping issue is the estate tax. The United States has had an inheritance tax since 1916, but the Bush plan began phasing out the estate tax in 2003 and repealed it for 2010. This year, billionaires can die and their estates pay no estate tax. If Congress does nothing, though, in 2011 the tax is scheduled to return to 2001 levels. Estates over $1 million would face a 55 percent tax rate.

Obama favors restoring the estate tax to 2009 levels, which would mean a 45 percent tax on inheritances of more than $3.5 million for individuals and $7 million for couples.

Republicans have long smelled political opportunity in the so-called death tax. A recent attempt by Sen. Jim DeMint, R-S.C., to repeal it failed when only two Democrats backed repeal.

Meanwhile, House Speaker Nancy Pelosi and many other Democrats still favor letting the tax cuts expire. Some Democrats though want to delay pulling the plug until after Obama has run for re-election in 2012.

Others have suddenly discovered that their wealthy constituents already face a high tax burden. Rep. Jerrold Nadler, D-NY, supports letting the tax cuts expire, but he and several other New York City area representatives want to shield their voters from the consequences by requiring the IRS “to adjust tax brackets proportionally in regions where the average cost of living is higher than the national average.”

“The reality is that a dollar in New York isn’t worth nearly as much as a dollar in Spokane or Knoxville or Topeka,” Nadler said. The Wall Street Journal mocked him editorially, saying “the bill is called the Tax Equity Act, but a more acurate title would be the Blue State Tax Preference Act.”

Republicans have hypocrisy of their own to explain. They just fought extending unemployment benefits on grounds it would add to the ballooning deficit. Now, they say it’s fine to retain income tax cuts for the wealthiest 2 percent, even though that would cost nearly $700 billion in lost tax revenue over 10 years.

They also argue that repealing the tax cuts would harm small businesses. Not so, says Treasury Secretary Timothy F. Geithner, who has taken the lead in refuting the Republicans on tax cuts.

Geithner called the GOP claim “a political argument masquerading as substance.” Fewer than 3 percent of small businesses would be affected, he said.

“There is no credible argument to be made that the purpose of government is to borrow from future generations of Americans to finance an extension of tax cuts for the top 2 percent,” Geithner said in a speech at the Center for American Progress.

Economists disagree over the effects of raising taxes. The rich haven’t been spending enough as it is to boost the economy, some argue. Others say raising rich people’s taxes won’t lead to higher tax revenues anyway.

That’s because one thing doesn’t change. The rich have the resources to avoid getting soaked.

© 2010 Marsha Mercer. All rights reserved.

1 comment:

  1. As regards tax reduction experation on Jan l, 2011, Ms Mercer grapples with a difficult and important topic, and is right on the mark. What Congress does or does not do about this issue may very well determine whether or not the economy goes into a double did recession.

    Good topic selection and treatment, Ms Mercer. We value your insight and your top notch writing. Thank you for what you do for us each week.