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Thursday, November 25, 2010

Slate: Guide to Your Thanksgiving Tax Argument

Slate: Turkey Tussle: Slate's Guide to Your Annual Thanksgiving Arguments, by John Dickerson:

First a prayer: May your Thanksgiving be peaceful and loving—free of pat-downs, fowl-ups, and political debate. ...  Nevertheless, I recognize that some families can't resist an argument. So at least you can plan for it. ... [A] better prayer for you may be Loudon Wainwright's Thanksgiving one: "If I argue with a loved one, Lord, please make me the winner." In that spirit, here's Slate's guide to this year's political arguments. ...

Extending the Bush tax cuts
Extend all of them forever: If Democrats allow taxes to increase, we're going to have our next Thanksgiving at Burger King. The fluttering recovery would plummet into a freefall. You can't just extend the tax rates for "middle income" families as President Obama would like, because that's unfair. Plus, raising the upper rate would unfairly hit small-business owners, and small business accounts for 70 percent of the net new jobs in an economy. Having lower marginal rates means people have more money they can invest, which boosts growth, which shrinks deficits. It's win-win-win!

Don't extend any of them at all: Let's remember why we are in this fix: Republicans couldn't win the tax-cut debate on the merits of the magical no-deficits argument 10 years ago, so they had to use a gimmick to pass the cuts temporarily, assuming that no one would have the guts to let them expire. Let's have the guts and stop these kinds of gimmicks. A balanced budget is important, because deficits lead to higher interest rates, which will kill growth as borrowing becomes more expensive. Ending the Bush tax cuts would bring in $3.3 trillion. As for job creation and economic stimulus, CBO says extending the tax cuts would not give you much bang for the buck. We could spend some of the money saved from letting the tax cuts expire on true job-creating stimulus (which voters say they want more than tax cuts, anyway). Money could better be used on aid for the states, extending unemployment insurance benefits, or creating tax credits that favor job creation.

Meanwhile, I wish that we could stop having this debate and start a real one over tax simplification, with lower rates and fewer loopholes.

Extend them temporarily: Higher taxes would kill consumer spending and probably the recovery. Raising the top rates might not kill the recovery, but that's not a certainty—and it certainly wouldn't help improve things. Plus, it is politically impossible with moderate Democrats voting against only a partial extension. So, let the tax cuts stay, permanently, for everyone making under $250,000 and extend them temporarily for those in the highest bracket. Let's remember that lowering the rates for those making less than $250,000 benefits everyone, including the wealthy. And let's not buy into the small-business myth: Fewer than 2 percent of small businesses pay the higher rate for those making more than $250,000 (or $170,000 for individuals).

Meanwhile, I wish that we could stop having this debate and start a real one over tax simplification, with lower rates and fewer loopholes. To make this happen we should follow Kent Conrad's proposal for tying any extension of the tax cuts to fundamental reform. If reform isn't passed in 18 months, rates start to inch up or revert to the Clinton-era levels. When politicians can't find courage to act, they should write it into law.

(Hat Tip: Ann Murphy.)

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