Even though the recession is officially over, the American economy remains dour and weak partly because of the uncertainties so many businesses face.
Given the vast reforms in health care and financial regulation that still are being figured out, along with questions about the strength of the recovery and continued stinginess in the credit markets, it’s understandable that folks would be cautious.
Congress could have added a measure of certainty to the discussion by deciding what to do with the Bush tax cuts.
Unfortunately, the Senate opted to wait until after Election Day. House Speaker Nancy Pelosi says the House still might take it up before it recesses this week, but the speaker looks to be playing politics as she seeks a vote that would require two-thirds of the House to approve. The move seems like an attempt to force Republicans to vote against tax breaks for the middle class in deference to rich earners.
If the debate is indeed delayed until after Election Day, perhaps then it can be debated fairly. While we have never thought it made sense to wage two wars on tax cuts, we see little harm in extending them for at least one more year as the nation gains its financial footing.
But whatever happens, the debate should focus on the facts, as both parties are playing fast and loose with certain arguments.
If nothing is done, and all the tax cuts expire, Republicans are warning that Americans will face the heftiest spike in taxes in our nation’s history. That’s not true.
An analysis by The Associated Press finds that while such an outcome would, in fact, dramatically lift taxes, they would not be as great as they were during World War II. Repealing all the cuts would save nearly $4 trillion within 10 years, so that should be some comfort to those who want to bring down the national debt.
Ending the yearly across-the-board tax cuts would equal about 2 percent of the gross domestic product. In World War II, taxes rose by 5 percent of GDP.
Meanwhile, President Obama worries about what extending tax cuts to the wealthy — those earning more than $200,000 a year, or couples making more than $250,000 — will do to the deficit. The AP found that extending the Bush cuts for those earners would add $700 billion to the debt within 10 years.
That’s nothing to scoff at, but what actually happens to the economy if you increase taxes for that bracket, which includes small business owners as well as the super rich?
Both sides of the debate make good points in the argument, the AP found.
Yes, it’s true that most small-business owners report income from their business on individual tax returns and pay taxes at the same marginal rates like lower earners. But 750,000 taxpayers would be affected. While that’s only 3 percent of those who report business income, that tiny group would see tax increases that cost $500 billion — or half the country’s reported business income.
That’s why Republicans argue that those business owners are more likely to spur economic growth if their rates remain at Bush administration levels. A lot of money is at stake.
Either way, Congress should make up its mind and not let all the cuts expire due to gridlock as usual.
