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Tue., July 10, 2012

Editorial: In tax-cut tug-of-war, both sides must budge

When politicians try to lure support for a proposal by stipulating that it will be temporary, it’s wise to ask, “If this is such a great idea, why give it an expiration date?”

Prime examples are the federal tax cuts enacted in 2001 and 2003, both of which were set to expire at the end of 2011. Congress voted to extend them for another year, while establishing the comically named “supercommittee” that would make tough budget decisions. Well, the caped crusaders failed, setting in motion some poorly designed year-end spending cuts that will be as welcome as kryptonite. And, on Monday, President Barack Obama said the tax cuts should be extended again, but just for those earning less than $250,000 a year. This, of course, would also be temporary. Republicans responded by saying keep all the cuts.

These tax proposals are temporary because the federal budget outlook is precarious. The purpose of the expiration dates is to buy time to re-examine the state of the budget, but politics have a way of distorting intent. So we’re faced with a game of budgetary chicken. If neither side yielded, the crash would be devastating. So reprieves are issued.

Obama’s announcement comes on the heels of a depressing jobs report and repeated cries from Republicans about the new middle-class tax increase, otherwise known as the coming penalty for not buying health coverage. It’s a way for the president to change the subject, while currying favor with most voters. Meanwhile, Senate Democrats haven’t adopted a budget in three years, so they can’t be taken seriously, either.

On the other hand, the Republican-controlled House of Representatives keeps passing bill after bill, knowing they will be dead on arrival, in order to set up election-year contrasts. In addition, members are resolute that no tax can be raised in the quest for narrowing this depressing budget equation: The government is spending $38 for every $22 it collects. Even the all-spending-cuts House budget doesn’t reach balance until 2040, and that’s after accepting some fairy-tale assumptions, such as all spending outside of Medicare, Medicaid and Social Security would amount to 3.75 percent of GDP in 2050, down from 12.5 percent now.

The easy riposte to addressing public debt is that it would hurt the economy. So both sides merely repackage their deficit-financed gifts in the hope of winning votes. The fact remains there is no pain-free way to alleviate debt that has grown to 70 percent of GDP, but there are smart ways that can temper the economic effects and avert the fate of Greece and other distressed European nations.

As the bipartisan Simpson-Bowles Commission has ably demonstrated (and both sides have ignored), the only way forward is a combination of tax increases and spending cuts that are phased in. If the Bush-era tax cuts are to remain in place, then some other way must be found to raise revenue. Tax reform could be part of the equation.

Whatever the solution, it will require that both sides give in. Wishful thinking in an election year? Perhaps. But cooperation is the only way to pluck the budget off the fiscal ledge.

To respond to this editorial online, go to and click on Opinion under the Topics menu.

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