Imagining the End of the Bush Tax Cuts

[ProSense]

Imagining the End of the Bush Tax Cuts

By DAVID LEONHARDT

My column this week examines the political challenge at the center of the deficit debate: the mismatch between the government services that voters want and the taxes that they are willing to pay. I suggest that a deadlock over the Bush tax cuts – expiring on Dec. 31, 2012, as prescribed by current law — may be one of the most plausible medium-term solutions.

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Both of these situations seem pretty unlikely. It’s just hard to imagine a world in which the United States government collects taxes equal to 30 percent of gross domestic product, up from an estimated 14.4 percent this year.

Second, a fair question to ask is, But won’t President Obama worry about taking the blame, just as he did when the tax cuts expired last year? Yes and no. Here’s Jonathan Chait at The New Republic, who has done some of the best writing on this subject (subscription required):

… what happens at the end of 2012? Well, the economy should be two years further along into a recovery. And Obama’s re-election will be behind him. At that point, his choice is easy. All he has to do is refuse to extend the tax cuts on income over $250,000 a year. He can say he favors a tax cut for income under that level, but he won’t have to follow through on that pledge, because Republicans will never agree to pass a tax cut only on income under $250,000. In a hostage standoff where one party secretly hates the hostage and the other party is at best indifferent to the hostage, then the hostage is probably going to die. End result: All the Bush tax cuts disappear starting in 2013.

Mr. Obama could blame Republicans for letting taxes go up on the hard-working middle class. (Hey, he wanted to extend them!) But their expiration would be a huge policy boon. It would slice $3.9 trillion off the national debt by 2020. How much is that? It would reduce the budget deficit to about 2.5 percent of gross domestic product, which means it would be out of the danger zone where the debt is growing faster than the economy.

I don’t want to suggest this chain of events is very likely. (And I don’t know that Mr. Chait does either.) But no single solution to the deficit seems likely. This one seems more plausible than many others.

[no_hypocrisy]

1. How do we know they won't be either extended or made permanent by republicans.

Won't they find another hostage to hold until they get their way, e.g., extension of unemployment benefits, funding to NPR, funding to Planned Parenthood, funding to the EPA, funding the SEC, etc.

[ProSense]

2. From the OP,

Chait:

… what happens at the end of 2012? Well, the economy should be two years further along into a recovery. And Obama’s re-election will be behind him. At that point, his choice is easy. All he has to do is refuse to extend the tax cuts on income over $250,000 a year. He can say he favors a tax cut for income under that level, but he won’t have to follow through on that pledge, because Republicans will never agree to pass a tax cut only on income under $250,000. In a hostage standoff where one party secretly hates the hostage and the other party is at best indifferent to the hostage, then the hostage is probably going to die. End result: All the Bush tax cuts disappear starting in 2013.