Saturday, October 30, 2010

Tax Rates

I get the arguments on both sides of the '01/'03 tax rates. Lower tax rates can have a stimulative effect and they should be able to limit government spending in some way. At the same time, they were not asked for and were sold as both "refunds" from a government surplus and "stimulus" for a struggling economy. And the Tax Policy Center has pretty accurately explained how they are the predominant cause of both the expanding deficit and the astronomical debt.

So, here's an idea:

Extend all the tax cuts for exactly twelve months, and then let all of them expire, or "sundown," as they were supposed, but to with this caveat: Sundown the sundown of all the tax cuts after another eight years. Since this debate tends to swing back and forth with the decades, and tax rates go up and down as we seek "optimum rates," let's make that policy. The Dems agree to extend them for a year. Then the GOP agrees to let them expire, as they were intended. But the Dems agree to allow them to fall again in eight years - when the economy is in better shape and the deficit has been closed and the debt paid down.

Seems like a pretty damn good Ronald Reagan-Tip O'Neill compromise to me.

What do you think?


Paul Swendson said...

I like the idea of compromise, but I don't know if tax policies should be "locked in." We were stuck with the Bush tax cuts long after it was clear that the surplus was history. I tend to think that tax rates are currently low while spending stays high because politicians believe that Americans are unwilling to accept sacrifice. When we talk about cutting spending, it is largely theoretical. This is why politicians avoid talking about specific cuts.

mmazenko said...

I agree it really has to be about spending and tax cuts. And tax rates shouldn't ever be locked in - the "eight years" is certainly negotiable. And a Balanced Budget Amendment is not a good idea, though valid in a theoretical sense.

The most obvious cuts that would be significant in debt and deficit are in military spending. Of course, long term Social Security and government pensions need to be trimmed back to an "insurance against poverty," not a full retirement system.