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Posted at 5:33 PM ET, 12/21/2010

The 111th's biggest loser: Tax policy

By Ezra Klein

The real loser of the 111th Congress has been tax policy. Most other issues the Congress took on, for all the compromises and inadequacies and delays, were moved forward. Tax policy was moved backwards.

The most egregious thing about the tax-cut compromise -- which, as I've said before, I supported given the options on the table -- was that it meant the Democratic Party was saying that the Clinton-era tax rates on the country were too high. But the real damage wasn't done during the deal-making. It was done in the 2008 campaign, when then-candidate Obama committed himself to holding taxes down for all income below $250,000. The tax cuts for the rich might've been more offensive, but from a fiscal standpoint, they were less consequential.

Then came the fiscal commission, which recommended that taxes get capped at 21 percent of GDP. Capping tax revenues is not something you generally do when you're trying to balance the budget, but they thought it might win them some Republican votes. It's not at all clear that it did.

Nevertheless, a Congressional Budget Office report on taxation shows how absurd that cap was: "We project that under current law, federal revenues will reach 21 percent of GDP in fiscal year 2020." That is to say, if the Bush tax cuts were allowed to expire, tax revenue would reach 21 percent of GDP.

So not only did Democrats agree that the Clinton-era tax rates were too high, but they created a commission that said they were so high that there should literally be a law passed making sure they can't go higher. Way to go, guys.

By Ezra Klein  | December 21, 2010; 5:33 PM ET
Categories:  Taxes  
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Next: Reconciliation

Comments

How do you know what tax cut options were on the table? I can think of a lot of options that would be better than the deal Obama got. People think, "oh it'll just be reversed in two years." Actually it cues up Republicans to run the table on spending cuts. This deal is going to be haunting progressives for decades to come.

My vote for most egregious thing in the tax cut deal: Did you know that the ludicrously generous estate tax cut is indexed to inflation? For one thing it expires in 2012. For another the estate tax was never indexed to inflation before. So why index it to inflation now? Obviously someone is chomping at the bit to make it permanent and avoid any more fights to raise the exemption. They literally just have change one line of the Obama-McConnell bill to make that dream a reality.

Posted by: bmull | December 21, 2010 7:00 PM | Report abuse

"Nevertheless, a Congressional Budget Office report on taxation shows how absurd that cap was: "We project that under current law, federal revenues will reach 21 percent of GDP in fiscal year 2020." That is to say, if the Bush tax cuts were allowed to expire, tax revenue would reach 21 percent of GDP.

So not only did Democrats agree that the Clinton-era tax rates were too high, but they created a commission that said they were so high that there should literally be a law passed making sure they can't go higher. Way to go, guys."

That's nonsense. Revenue during the Clinton years didn't even come close to averaging 21%.

Posted by: krazen1211 | December 21, 2010 9:07 PM | Report abuse

No the real loser was climate change legislation which never even got to a cloture vote in the Senate and now presumably is dead for the foreseeable future. We can tinker with the tax code any time we want but we're running out of time to keep the effects of global warming to a manageable level. And no EPA regulations aren't enough and they'll probably be taken hostage during next year's spending battles anyway.

Posted by: redwards95 | December 22, 2010 10:25 AM | Report abuse

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