By Will Rice –
WASHINGTON — You usually can’t reverse a bad decision by simply doing nothing, but that’s exactly the opportunity we have at the end of this year.
That’s when the tax cuts for wealthy Americans passed in the early years of the Bush administration are set to expire. Though some politicians are urging that these temporary measures be made permanent, we should instead allow nature to take its course.
In 2001 and 2003, President Bush and the Republican-controlled Congress passed two big tax-cut bills. Though taxes were lowered across the board, the bulk of the benefits went to the wealthiest top few percent of American households.
Among the breaks that principally served higher-end taxpayers were reductions in the rates paid on passive income like dividends and capital gains. It’s those breaks that allow billionaire Warren Buffett to pay a lower tax rate than his secretary, and Mitt Romney — the $200 Million Man — to pay less than 15 percent federal tax on his income.
The world has changed a lot since the early Bush years. But even then, it was understood what a devastating effect losing so much revenue would have on our national budget.
So the cuts were made temporary: after 2010, rates were scheduled to return to their original levels. But as 2010 came to a close, congressional Republicans refused to extend middle-class tax cuts and unemployment benefits for the long-term jobless unless the high-end cuts were extended as well. President Obama negotiated a two-year extension deal; we reach that extended deadline at the end of this year.
When the first big tax cut for the wealthy was passed, in 2001, the federal government was awash in cash: we were running budget surpluses as far as the eye could see and steadily paying down our debt.
While the prudent thing would have been to divide those surpluses among middle-class tax cuts, smart public investments in things like roads and schools, and further debt reduction, instead they were spent entirely on tax cuts tilted toward the wealthy.
And even though our fiscal situation was drastically different two years later — we were by then involved in two costly wars — still more breaks for the wealthiest taxpayers were passed into law.
It’s clear we couldn’t afford these cuts in revenue, but did they at least give us the economic expansion and job creation we were promised?
No. Growth in household income and employment were anemic in the years that followed the Bush cuts — even before the Great Recession hit in 2008. The American economy and the average American household did much better in the 1990s, a decade that began with increases in the taxes paid by the wealthy.
Turns out, the wealthy already have more than enough money: even as the broader economy struggles, sales of luxury goods like yachts and expensive cars are booming. And the companies wealthy people invest in are sitting on record amounts of cash. The real economic problem isn’t with the 1 percent, it’s with the rest of us.
What America needs is more targeted public investment to get our economy moving again: in education, transportation, communications, research. We also need to prove to the world that we can get our fiscal house in order.
Extending the upper-income tax cuts impairs both those important efforts. It’s estimated that extending the cuts for the wealthy will cost our treasury a trillion dollars over the next decade, ensuring either higher deficits or impoverished public investments over that period.
Let’s by all means extend the tax cuts benefiting families making less than $250,000 a year — which covers 98 percent of all American households. But for the sake of our economy and standing in the world, tax giveaways to those making more than that should be allowed to expire on schedule.
