Politics & Policy

Countdown to a Whopper Tax Increase

Do Republican lawmakers have what it takes to stop it?

Only 1,295 shopping days left until a massive tax increase hits America. That’s right: Unless congressional Republicans aggressively focus on extending expiring tax cuts, taxpayers will soon enough be facing the biggest tax hike in American history.

Recall the history here: When President Bush’s first tax cuts were enacted in 2001, the president had to agree to a sunset clause providing that, unless extended, the tax cuts would expire at the end of 2010. This unfortunate provision nevertheless helped secure enactment of the tax bill by making the fiscal impact of the tax cuts on the budget seem smaller than it would otherwise have been counted under congressional rules. As for the pro-growth tax cuts on dividends and capital gains passed in 2003, a sunset date originally set for the end of 2008 was extended last year by a Republican Congress to the end of 2010.

But with the Democrats now in control of Congress, the political landscape has drastically changed. Rather than having to actually vote to raise taxes, the Democrats simply have to wait until the money comes to them. Of course, that’s your money they want to spend on new government programs, rather than giving it back to you to spend as you desire.

There’s a lot at stake here. As bad as higher income and investor tax rates will be, consider the impact on the death tax. This tax has been gradually declining since 2001, and it will reach zero — where it ought to be — in 2010. But it will revert to its full, absurdly high pre-2001 rate in 2011. If you’re an older American, you may not want to drink that champagne cocktail your children give you on New Year’s Eve 2010.

One thousand two hundred and ninety-five days may seem like a long time, but inside the Washington Beltway, it’s a pretty tight window. In fact, there are relatively few opportunities for debating tax-cut extensions — for instance, as part of the budget resolutions that Congress must pass each year — so long as the Democrats control Congress. Again, all the Democrats have to do is nothing, and the tax cuts expire.

But the impact of this massive tax hike on the economy would be severe, and could inevitably lead to an economic slowdown. That’s why Republican politicians must face the issue squarely and bring it before Congress and the public at every possible opportunity. In fact, keeping the tax cuts permanent should be the centerpiece of the 2008 Republican campaign.

As 2010 draws closer, the Democrats predictably will argue that we can’t “afford” to make the tax cuts permanent. Barack Obama recently joined Hillary Clinton and John Edwards in saying that he would “pay” for his health care plan by letting the tax cuts expire, completely ignoring the fact that with lower tax rates, people will have more money to pay for their own health insurance and will enjoy a greater variety of health care choices. But the Democrats’ logic is that the government can spend the money better than you can. And anyway, aren’t all these tax cuts simply tax cuts for the rich?

The Democrats have it exactly backward: Tax cuts should be the impetus for entitlement reform rather than an excuse to avoid it or expand the government. After all, only with a growing economy do tax revenues rise. (In fact, tax revenues have climbed to record levels since 2001.) Entitlement reform cannot simply mean expanding the government and avoiding the difficult choices Congress must face as the Baby Boom generation begins to retire. Such “reform” would mean the children of the Boomers would have to pay higher tax rates for services that they themselves will likely never receive.

But congressional Republicans also are part of the blame for the situation we’re in. They could have been working aggressively to make the tax cuts permanent, but they have not. Even a lost vote last year, with a few Republican defections, would have crystallized the issue in voters’ minds.

Remember those millennium clocks that counted down the days and seconds until the year 2000? I’m thinking there should be Bush tax-cut clocks which count the hours until December 31, 2010. With one of these clocks on the desk of every Republican member of Congress, maybe there’d be a little more motivation in the cause of blocking the largest tax hike in the history of this country.

–Mallory Factor is the co-founder of The Monday Meeting. A version of this article originally ran in The Post and Courier.


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