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What's Congress likely to do about the Bush tax cuts?

Pete Davis lays out the scuttlebutt:

My conversations with top Hill staff of both parties convince me that Congress is very likely to wait until a lame duck session in December to pass a one-year extension of the Bush tax cuts for those under $250,000 ($200,000 for singles). This will maximize tax rate uncertainty for small businesses and will hit the equity markets with a 39.6% dividends top tax rate, up from the current 15%. Both President Obama and Senate Finance Chair Max Baucus (D-MT) want a 20% top rate on dividends, but I don't see Congress reaching an overall compromise on the Bush tax cuts that would pay for the 20% rate. Then, if the Republicans take the House on November 2, we'll experience budget gridlock as the public debt rises toward 87% by 2020.

I think that would make sense, actually. You want to extend the bulk of the tax cuts until the labor market rebounds, and then you want to take a more skeptical look at them in a time of economic normalcy. You don't want, as a consequence of the recession, to extend them for 10 years when we'll need to turn our attention to deficits in two or three years. The more options we have for reducing the deficit by not doing anything and just allowing current law to take effect (and time-limited tax cuts to expire), the better off we are.

By Ezra Klein  |  July 15, 2010; 10:27 AM ET
Categories:  Taxes  
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Comments

What the markets need is stability. The correct policy is to make permenant the Bush tax cuts for all those making less than $250,000 ($200,000) for singles and return those above that permenantly to the previous tax rates.

Permenance allows people to make wise economic decisions, be they individuals or businesses. There needs to be stability and permenance in tax rates. It would be a tradgedy if Congress does not use this opportunity to provide the market for the first time in 10 years some long term stability in tax policy.

Posted by: lancediverson | July 15, 2010 10:56 AM | Report abuse

Listening to C-Span yesterday, I was surprised how the universal opposition seemed to be to the AMT, yet were also arguing for tax simplification in response to Senator Wyden's questions. To me, the AMT is better than the regular tax system- it's so much simpler! Just drop the rest of the deduction and exemption ridden piece of garbage tax code we have now and put that in place- for everyone!

Posted by: staticvars | July 15, 2010 11:01 AM | Report abuse

So what you're saying, lance, is that the taxes should never have been cut in the first place...

Posted by: constans | July 15, 2010 11:15 AM | Report abuse

There is nothing to discuss here.

Democrat liberals have whined and whined for years about the "Bush Tax Cuts" and now you think they are not going to let them sunset?

Are you kidding?

Here's a chance to massively raise taxes and be able to claim that is wasn't their doing.

Paleeeeze!!!

Posted by: WrongfulDeath | July 15, 2010 11:26 AM | Report abuse

Staticvars,
The AMT is a better system in its design; however, the problem is that it runs in parallel to the existing tax code and lunges out at you should you take too much in perfectly legal itemized deductions. I think that is what rubs so many the wrong way when it comes to the AMT.

Posted by: novalifter | July 15, 2010 11:42 AM | Report abuse

Pul...eaze, we know if the economy recovers and the Repubs gain control their reasoning will be that tax cuts will stimulate the economy and lower the deficit. Do you think they are really concerned about the deficit ? They have stated that funding a tax cut doesn't matter and that we should only have to worry about funding new spending.

Posted by: Falmouth1 | July 15, 2010 12:09 PM | Report abuse

I think the tax rates for those making under $250,000 for couples are fair. I am not the only one saying this, Barack Obama campaigned on that platform.

I do think that income inequality could be reduced by returning the highest income tax rates to their level in the 90 while maintaining the current tax rates for those earning under that threshold.

Posted by: lancediverson | July 15, 2010 1:05 PM | Report abuse

@WD: Here's a chance to massively raise taxes and be able to claim that is wasn't their doing.

Paleeeeze!!!

Pleeeze remember that the tax cuts sunset on their own.

Those bills were passed by a republican controlled house, senate, and president. Go whine to them about why they didn't make them permanent then.

Posted by: srw3 | July 15, 2010 1:43 PM | Report abuse

Let all the tax cuts expire. Balance it out with more temporary stimulus for people earning below $250,000/year.

Posted by: MosBen | July 15, 2010 1:47 PM | Report abuse

srw3 is just wrong. The 2001 tax cut was passed with a Republican House, a Republican president, and a Democraticly controlled Senate. Tom Daschle was majority leader after Jim Jeffords switched parties.

Posted by: lancediverson | July 15, 2010 2:43 PM | Report abuse

@MosBen
Balance a reduction in revenue with more expenditures? Brilliant.

Posted by: daveredhat | July 15, 2010 3:17 PM | Report abuse

I wish that capital gains income could be taxed progressively.

Posted by: SnowleopardNZ | July 15, 2010 3:51 PM | Report abuse

Absurdly low tax rates on the wealthy and the corporations do not stimulate the economy. In fact, they deprive us of a major budget revenue source. Cutting taxes stimulates the economy when tax rates are very high. We don't have high tax rates. What we have are two hugely expensive, unfunded wars; a crumbling social services, and an underfunded infrastructure, the lowest tax rates that I have ever seen.

http://www.cbo.gov/ftpdocs/110xx/doc11042/02-03-CaseyLetter.pdf

Posted by: PinkMuslimah | July 15, 2010 3:56 PM | Report abuse

@daveredhat,

"Balance a reduction in revenue with more expenditures? Brilliant."

No, the expiration of Bush's tax cuts brings an increase in revenue.

I guess Mitch McConnell must have given you a sip of his special Kool-Aid.

Posted by: Patrick_M | July 15, 2010 5:46 PM | Report abuse

Thanks, Patrick_M, I was going to say the same thing. I don't want to keep the tax cuts active, because as it's been pointed out it's just going to make it harder to repeal them later. Better to let them all expire now when there's at least an arbitrary deadline to rely on. At the same time, I don't necessarily want to take money out of the economy right now, so we can balance the increased revenues with some short term stimulus.

Posted by: MosBen | July 15, 2010 10:40 PM | Report abuse

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