Wednesday, September 15, 2010

What Should Congress Do About Bush-Era Tax Cuts?

The Economist: The Bush Tax Cuts: A Slight Reprieve?
The Wall Street Journal: Tax Cuts Dividing Democrats

The Wall Street Journal: With Elections Looming, Congress Is Unlikely to Act Soon
CNN: Key Democrats Split With Obama on Taxes
BBC News: Obama Defends Opposition to Tax Cuts For Rich Americans
The Wall Street Journal: Sen. Ben Nelson Pushes Extension of All Bush Tax Cuts

There is currently an ongoing debate between the Republican and Democratic Parties over how to address tax cuts. The 2000 presidential campaign first introduced tax cuts to the American public when both Bush and Gore pledged to use the cuts as a way to return a portion of the budget surplus to the American people. After the economic downturn in 2001, tax cuts were used as a stimulus for the economy. These Bush-era tax cuts spanned ten years and are set to expire in 2011.

In July, Obama proposed the extension of most of the Bush-era tax cuts, including those for households that earn less than $250,000 or single earners that make less than $200,000. However, Obama urged Congress not to renew the tax-cuts for wealthy Americans. Obama stated that extending the Bush-era tax cuts for wealthy Americans would mean the U.S. would forgo $700 billion in tax revenue from already extremely wealthy taxpayers. Obama criticized Republican leaders, who have been calling for the shrinking of the country’s deficit, for supporting the tax cuts on the wealthy because the taxation would provide a large source of revenue.

Although Obama has condemned members of the Republican Party for their lack of support for allowing tax cuts for the wealthy to expire, the Democratic Party is split over how to address tax cuts and deficit concerns. Key Democratic senators such as North Dakota’s Kent Conrad, Nebraska’s Ben Nelson, and Indiana’s Senator Evan Bayh have all expressed concerns with not renewing all the Bush-era tax cuts, including those for the wealthy. Conrad stated that he thought the best solution would be to not implement changes in the tax law until the economy was stable. Nelson agreed, saying that tax increases could hinder an already weak economy’s recovery.

The decision of whether or not to extend the tax cuts will have huge impact on Americans. The United States is slowly moving out of the recession, and a bad decision by Congress may cause increased economic hardship. It is unlikely that Republicans and Democrats will agree on a bill that addresses tax cuts in the next four weeks when November elections are looming. If Congress does not reach a solution before the November elections, they will be under increased pressure to act before January when the tax cuts expire.

The politics of post-November Congress will be further complicated because experts predict Republicans will unseat a significant number of Democrats. These newly-elected Republicans won’t take their seats in Congress until after the end of the year. This will result in a lame-duck session with neither party willing to negotiate solutions for the tax-cut problem. Some scholars suggest that Congress should have used the expiring tax cuts as a chance to address problems with the tax code itself, prompting an overdue reform to make the tax system both more efficient and less complicated. It is too late for such a reform now, and it might be too late for Congress to reach a much needed solution to the United States Bush-era tax-cut problem before the year’s end.

Discussion Questions:
1. Should Congress renew all of the Bush-era tax-cuts? What are some of the advantages and disadvantages of extending all the tax-cuts?
2. What are some compromises Republican and Democrats might be able to reach concerning tax-cuts?
3. If Congress fails to act before November, how can a lame-duck session solve the tax-cut situation?

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