U.S. tax cuts may cheat death, but reform needs life

November 5, 2010

The Bush tax cuts look on the verge of cheating death. The White House is strongly hinting it will compromise with Republicans and agree to temporarily extend wealthy and middle-class tax reductions set to vanish at year-end. That would provide welcome relief since even partial expiration risks sapping economic growth during a flaccid recovery. But a two-year deal, while welcome, would also still leave the long-term state of the tax code in flux. Washington should use the extra time for sweeping reform.

The tax cuts enacted by George W. Bush became an important talking point for the midterm campaigns. Besides the national GOP victories, liberal Washington state provided a glimpse into how the country seems to be thinking about the issue. Voters there overwhelmingly rejected a measure that would have raised income taxes on the richest 1 percent to pay for education and health spending.

Higher taxes remain politically toxic in the slow-growth, high unemployment U.S. economy. That’s one reason why White House press secretary Robert Gibbs said his boss is willing to haggle. President Obama already was on board with permanently extending middle-class cuts costing $2.9 trillion over a decade. He now also seems ready to accept a brief extension of cuts for the rich that will add to the tab.

The deal is likely to be a combined two-year extension. Republicans reckon their 2012 negotiating position would be stronger by keeping both sets of cuts on the same schedule since the high-end ones are less popular. But the timing also ensures the hot-button matter will get new life during the presidential election season.

The only potential silver lining to this unpleasant sausage-making is that it provides a window for a long overdue discussion about a longer-term fix. America needs a more stable and simpler tax system to become more competitive.

Obama’s deficit panel may offer some suggestions next month, but the basics seem basic enough. Taxes should be lower, broadly applied and subject to as few market-distorting deductions and loopholes as possible. As Indiana Governor Mitch Daniels often quips, America needs a tax system that looks like someone designed it on purpose.

Comments

I think the comment “Voters there overwhelmingly rejected a measure that would have raised income taxes on the richest 1 percent to pay for education and health spending.” is total BS… People voted against the general state of the economy, not to support tax cuts for people who do not need it (FYI, my household income exceeds $250k, so i would pay the higher rate).

The entire US tax regime needs reforming, making it both simpler and limiting the amount of deductions that can be used.
One point should be that a minimum 10% of total income, excluding deductions should be implemented, so that the very wealthy pay their share, and that also poorer people participate in the tax burden, to remove some of the incentive to stay out of work

Posted by GA_Chris | Report as abusive
 

Pethokoukis may be miss reading why Washington State voters did not approve the increased tax on the richest 1% to fund education and health spending. Rather than raising taxes on anyone to maintain out of control state and fed budgets pehaps the real message was “get your fiscal house in order”. Arizona voted down transferring funds earmarked for other programs to the general funds. Everyone is talking about jobs, economic growth and the deficits from California to D.C. I don’t think you have to be a world class economist to realize that putting more money into the hands or all citizens (even lower taxes) and cutting the insane spending of government is the best way to fix all those issues. But politicians have to look past doing what they think they need to do to get re-elected and start doing what’s right. We can no longer afford the neo-cons like Dick Cheney who want us to spend trillions on support their ideology. Even Bush in his new book says the attack on Iraq was wrong. The best defense against all aggressors is to make all Americans stronger. Not just the elite. Wake up America! These guys work for us. Make them do their job!

Posted by xyz2055 | Report as abusive
 

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