The Tax Man Cometh

The current political hot topic is taxes. When Congress passed President Bush's tax cuts in 2001, the then Republican congress used a procedure known as "reconciliation" to get the bills through. Bills passed by way of reconciliation need only simple majorities to pass and are not subject to Senate filibusters. The Democrats recently used the very same reconciliation procedures to pass the final elements of its health care reform bill

The catch is that any change to tax policy passed via reconciliation has a shelf life of ten years, after which the previous policy returns. Because Congressional Republicans could not get a permanent (and larger) tax cut through congress in 2001, they settled for a ten year tax cut. This had its upside – it made the tax cut look a lot less expensive than it really was. This was because official projections were based on existing law, which had the tax cuts expiring in ten years. That the Republicans never intended to let the tax cuts expire reveals their duplicity, or their savvy, depending on your perspective. They believed they were building a permanent majority, so they could afford to wait a few years and make the cuts permanent when their majorities had increased.

But a funny thing happened in 2006 – the Republicans lost their majority. Their drubbing was even worse in 2008.

And now the tax man cometh.

As to the best way forward, a thought that I sometimes enjoy as a daydream is that Obama would ask the Republicans if they agree that – putting aside emergency conditions like a severe recession, in which deficit spending is necessary to fill a large lag in aggregate demand – the citizens of each generation should pay for the government they want. Obama might say, “surely we agree that whatever we decide to do collectively, through the democratic process, we ought to pay for it ourselves rather than push the costs on to our children.”

If the President could get this concession from the Republicans, he could then take the following position: “Given that we all agree that each generation should pay for the government it decides it wants, I will not talk about tax policy in the abstract. Since we all agree that we should pay for whatever level of government we choose, calls for lower taxes are unmistakably arguments that the government is doing something it shouldn’t be doing. And if that’s what’s being asserted, we should discuss that. What is it that the government is doing that you’d like to cut, with the resulting savings used to offset tax rates? And be specific, so our discussion can be focused, productive, and accessible to the American people.”

I know, it’s a utopian illusion. But the tax man cometh.

Joe H.