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The Political Theater of the Expiring Bush Tax Cuts and the Street Mob

Posted By J.D. Foster, Ph.D. On December 2, 2010 @ 11:09 am In Economics | Comments Disabled

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The House of Representatives is set to open the next act in the grand political theater, a fiscal tragedy of epic proportions surrounding the prevention of a massive tax hike set to befall the American taxpayer in a few weeks. Why? The Bush tax cuts expire.

The scene opens with the Members voting on an expanded version of the President’s original proposal to allow the tax hike to fall only on singles making more than $200,000 and married filers making more than $250,000 annually. The expansion is the addition of a number of terrible tax provisions originally enacted as part of the “temporary” stimulus.

In previous scenes, President Obama and his allies have repeatedly argued that the tax increase is necessary to begin to address the budget deficit. His admission of our disastrous fiscal path that he has made substantially worse is encouraging, but as typical of his economic policies, his prescription is largely political and entirely harmful.

The current budget deficit is entirely the result of Obama’s spending surge combined with a weak economy that has dramatically cut tax revenues. Beyond any question, the most important step toward a more sustainable budget in the near term is economic recovery. Cutting spending to reassure markets would help, but above all it is ludicrous to lash the economy with higher taxes on anyone under these circumstances, especially on investors, savers, and small businesses—the economic actors who give the economy vitality.

Even if today’s budget deficit were manageable, deficits in the coming years are not, as is now universally accepted. In this light, the President says we cannot afford not to raise taxes as he prescribes. However, the record and the data clearly indicate that his policy is about politics and spite, not about the budget.

As to the record, the issue is fundamentally whether spending will be higher or lower. It is axiomatic that when there is more tax revenue, there will be more spending. In this light, Obama’s assertion at Cuyahoga Community College last September that “I’ve got a whole bunch better ways to spend that money” says it all. The issue is not the deficit or whether we can afford not to raise taxes. The issue is Obama’s Christmas wish list. When it comes to taxes, the President doth protest too much.

Turning to the data as presented in the President’s own Mid-Session Review, taxes are now slated to rise by over $3.6 trillion over the next 10 years if the 2001/2003 tax provisions are allowed to expire. Obama wisely proposes to prevent nearly $3 trillion of that tax hike, or 83 percent. His proposal is to let $629 billion of it take effect, or about 17 percent of the total. So at a time when the current policy deficit over the next 10 years is projected to be over $10 trillion, he is willing to forego $3 trillion in revenue as long as he gets the last $629 billion.

Obama’s proposed tax hike represents just over 5 percent of the projected budget deficit over the next 10 years. The tax hike is not about the budget, and it certainly is not about job creation, which he is apparently intent on dampening. It is about an ideology that says the rich, the near-rich, and the even the far-from-rich cannot be soaked enough. It is about an ideology of envy, an ideology of frustration against the reality that some do very well economically while others continue to lag. Rather than address the reasons why some prosper less than others, Obama and his fellow travelers would rather take the simpler road of lashing out at those who do prosper. For all of his lofty rhetoric, this is the mentality of the street mob. Therein lies yet another ongoing tragedy.


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