The next big legislative soap opera in this country will involve expiring tax cuts. A few long-time fiscal sinners seeking to do a hair shirt number (think Alan Greenspan here) have been saying all these tax cuts, instituted in 2001 with George W. Bush in office, should be allowed to expire because otherwise the national debt will grow still more disastrously in coming years.
But congress wasn’t elected to do the unpopular — to do things like letting tax reductions expire. Congress, after all, is the giver of last resort when the private sector has stopped giving to anyone who doesn’t run a hedge fund or put his own people on a corporate board in order to be awarded a huge compensation package.
The tax cut issue to be decided by congress will thus pit Democrats, who want to extend expiring tax cuts for those who aren’t well-to-do or outright rich, while pretending to be fiscally prudent by not extending them for the big bucks crowd, against Republicans, who wish to pretend that people making $500,000 a year, a million a year, or tens of millions a year are all small business people who also deserve to have their taxes kept at post-2001 Bush-era levels. Another element of the Republican argument is that in the present deep recession, the spending power represented by rich folks tax savings should not be withdrawn from a staggering economy.
So those are the three choices we hear about in this debate. The only three choices. Either let everyone’s lower income tax rates expire; or let everyone’s lower tax rates be renewed; or only renew lower income tax rates for the poor and middle class.
There’s another choice you probably won’t hear about, though. Which is unfortunate. Because it makes more sense than the other three you will hear about.
Here it is: We do NOT extend tax breaks for this country’s top 5 percent earners. But then, instead of sending the nearly $700 billion this would generate to the Treasury in the next decade, we apply this $700 to reducing the payroll tax — a tax that is only assessed on incomes of $104,000 or less a year, while also reducing the share of the payroll tax paid by small businesses that are really small businesses, enterprises with 100 employees or less.
This would not be an overall tax increase. It would simply shift tax savings to people who because of strapped personal situations would be very likely to spend it all rather than people who don’t have to spend every cent they make just in order to live — thereby giving the overall economy a real boost.
For poor and middle class-loving Democrats, it would not only be a continuation of a Bush-era gift to these folks but an enhancement of said gift. For small business-loving Republicans, it would be the greatest gift that party has given that critical sector of the economy since Abe Lincoln started buying boots and hardtack from local suppliers for the Union army. And even the richest of the rich, it should be noted, would actually see some tax savings in this plan — on income their earn up to $104,000.
This is almost certainly the best way to deal with expiring lower income tax rates. A way that does better for all constituencies that both major parties claim they are trying to help. Alas, this is 2010 Wacky Time in Washington. So it likely won’t make an appearance on your local TV screens.
Too bad. Too darn bad…
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