海角大神

The wrong tax debate, the wrong tax policy

Obama needs to return to his original tax priorities, and stop treading in the morass of the Bush tax cuts.

Today I have an which doesn鈥檛 say anything you haven鈥檛 heard me say here before (over and over again!), but it was awfully nice of CNN to invite me to publish it where it will certainly get more eyeballs. Here鈥檚 the opening:

(CNN) 鈥� President Obama proposes to let the Bush tax cuts for the rich expire as a way of 鈥渟aving鈥� $700 billion over the next 10 years. He says that our nation cannot afford those cuts, given the unsustainable outlook for the federal budget and the threat it poses to both our short-term and long-term economic health.

But that savings is just a fraction of the $2.2 trillion cost (without interest) of the generously defined 鈥渕iddle-class鈥� portions of the Bush tax cuts, which President Obama does want to extend.

The president鈥檚 choice to continue most of the Bush tax cuts is puzzling. He has repeatedly blamed the Bush tax cuts for the fiscal mess he inherited and rightly points out that they did our economy little good 鈥� and a lot of bad 鈥� over the past decade.

To the list of examples of deficit-financed fiscal policies that would be more effective at stimulating the short-term economy, I should have added some tax cuts that President Obama can more legitimately call his own, which E.J. Dionne handily reminded me about in :

[N]otice that this entire battle is being framed around Bush鈥檚 proposals. The parts of the Obama stimulus program that never get discussed 鈥� one reason it may be so unpopular 鈥� are its many tax reductions.

John Podesta, president of the Center for American Progress and White House chief of staff under President Bill Clinton, noted the Obama tax cuts also expire at the end of this year: 鈥淚 don鈥檛 understand why we鈥檙e only talking about extending George W. Bush鈥檚 tax cuts, which are heavily skewed to help the wealthiest Americans, yet no one鈥檚 discussing President Obama鈥檚 cuts, which are exclusively focused on middle-class families.鈥�

I don鈥檛 understand it, either. The stimulus included not only the broad Making Work Pay tax cut that gave most families an $800 refundable tax credit but also the child tax credit and the earned-income tax credit, which were especially helpful to lower-income families鈥�

But remember, President Obama鈥檚 mistake all along has been . The first time he included an extension of the Making Work Pay tax credit , he proposed a permanent extension with its costs to be offset with revenues from auctioned carbon permits (climate change policy). Well, that didn鈥檛 go over so well with Congress (including Democrats in Congress), once they realized that such a climate change policy was actually intended to raise revenue. As soon as it became clear Congress wouldn鈥檛 support that offset, the President backed away from his proposal, claiming that because it was in place until the end of 2010, he would have some time to revisit the proposal later. Meanwhile, he has continued to propose deficit-financing the permanent extension of $2 trillion worth of the Bush tax cuts which have always been scheduled to (also) expire at the end of 2010. I鈥檝e never understood why in favor of his predecessor鈥檚 (by his own label) 鈥渇ailed鈥� policies.

Incidentally, in the , he proposed just a one-year extension of the Making Work Pay tax credit, this time deficit-financed under the umbrella of policies intended specifically as 鈥渟timulus鈥� (which to work properly should be deficit financed). But the proposed extension of the 鈥渕iddle-class鈥� Bush tax cuts is still included as part of the Obama 鈥渃urrent policy鈥� baseline and is still permanent and still fully deficit financed. No justification needed.

I鈥檓 not claiming that a permanent, deficit-financed extension of President Obama鈥檚 Making Work Pay tax credit would be a good tax policy for the long run. But that鈥檚 not what President Obama ever proposed. He did it right: he first proposed permanent extension fully offset as a longer-term tax policy, and then (when that didn鈥檛 work) proposed a temporary, deficit-financed extension as stimulus. And in terms of stimulus, a temporary extension of a refundable tax credit like the Making Work Pay credit would be more effective in terms of economic 鈥渂ang per buck鈥� than any extension (temporary or permanent) of the 鈥渕iddle-class鈥� Bush tax cuts鈥揳nd far less harmful to the longer-term fiscal outlook.

I鈥檓 asking (yet again) why does President Obama refuse to hold the Bush tax cuts up to the same standards as his own policies? I (like E.J. Dionne and John Podesta) just don鈥檛 get it. He鈥檚 never really liked the (鈥漟ailed鈥�) Bush tax cuts that much, right?

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**Addendum (2 pm): Here鈥檚 (subscription required).

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