In a recent story published on the Drudge Report (I’m not going to link to it, but you can find it easily with Google), the recent proposal to extend the bush tax cuts for all income up to $250,000 was referred to as a “tax hike.” This is a ridiculous distortion of the truth.
Here’s the situation: the Bush administration and the Republican party passed some (not-paid-for) tax cuts a while ago, and the bill passing the tax cuts stated that they would expire at the end of 2010. Obama campaigned on extending them only for income below $250,000 (ie, if you made a million dollars, you’d pay the lower rate on your first $250,000 in income, and the higher, pre-Bush rate on the rest). So, indeed, under his plan taxes would go up for rich people — specifically, the richest 2%. The controversy going on today is that Republicans want all of the tax cuts to be extended, including those for people in the top 2%.
So why are Democrats so insistent on letting the taxes on those 2% go up? First, the Bush-era tax cuts disproportionately helped rich Americans, according to a study by the non-partisan Congressional Budget Office. Second, tax cuts for the rich are less useful to the economy than tax cuts for the poor. Third, the tax cuts are still completely un-paid-for and will just be heaped onto the deficit, to the tune of $700 billion for the top 2% alone. A recent New York Times editorial explained it:
Ultimately, the case for the top-level tax cuts is increasingly shaky. If Republicans are the least bit serious about reducing the deficit, they have to acknowledge that doing so requires additional revenues, $700 billion of which would be lost to the top 2 percent of earners in the next decade if their taxes do not rise. Handing out those revenues to the rich would have little stimulative effect on the economy because those taxpayers tend to save rather than spend their marginal income.
The Democrats had very strong support for their plan, so of course they screwed it up somehow. Right now it looks like they’ll end up caving in to the Republicans, who are still technically in the minority during this lame duck session.
But back to Drudge and his silly headline. The compromise Pelosi put forward in congress was to have a bill that specifically extended the tax cuts for the first $250,000, and let the rest of the tax cut extension be voted on separately. So, we have a bill that specifically extends part of the Bush tax cut, and says nothing about the rest of it. Drudge calls this a “tax hike.”
His reasoning is, presumably, because the bill doesn’t extend the tax cut for everyone, it is therefore responsible for raising taxes on the people it doesn’t mention. This is a bizarre bit of reasoning (if you push it far enough, you could say every bill in congress is also a “tax hike,” because they don’t extend or even mention the tax cuts for the rich either), but it’s sadly the way many people are thinking about the issue.
Imagine this: congress passes bill A that says everyone must wear hats. Congress then passes bill B that says people with black hair do not have to wear hats after all. Would it be fair to say that bill B forces all non-black haired to wear a hat? Certainly not. That was bill A’s doing. And similarly, if taxes do end up increasing, it’ll be the fault of the Bush tax cuts that were designed to expire in 10 years.