Saturday, December 04, 2010

EDITORIAL >> Tax cuts up in air

The economics is easy; it’s the politics of this week’s tax-cut battle that we do not understand.
Why are Democrats and President Obama surrendering on an issue on which the vast majority of the American people support them?

Thursday, the U. S. House of Representatives voted to extend the income tax cuts of a decade ago, except the top bracket. The tax rate on income above $250,000 would return to 39.6 percent from the current rate of 35 percent. The current rate is near the lowest it has been since World War I (it was 33 percent from 1988 until 1991). Even at 39.6 percent, the tax rate on America’s richest 1 percent would still be less than half what it was in 1970.

Polls have shown consistently, as late as last week, that three-fourths of Americans think that is the right thing to do. It would shave $680 billion from the nation’s deficits over the next 10 years and would have no dampening effect on the economy. When the top tax rate was raised to 39.6 percent from 35 percent in 1993, you may remember, the economy set off on the biggest growth binge in history, including 22 million new jobs in eight years.

We were glad to see that half the Arkansas House delegation saw the same wisdom that most Americans did and voted to extend the tax cuts for all but the richest people—some 15,000 of them in Arkansas who have income in the top bracket. Actually, the people who profit most from that bill still would be the richest people. They would enjoy the same tax cuts in four lower brackets that middle-class workers do, only much more. They still would get an average tax cut of $61,510 a year, far more than everyone else; they just wouldn’t get the extra benefit of the low rate on income above $250,000.

Rep. Vic Snyder of Little Rock and Rep. Mike Ross of Prescott voted for the bill. Rep. John Boozman of Springdale, who is shortly to become our senator, voted no, as always because that is what the Republican leadership requires. Rep. Marion Berry of Gillett, who has taken a strange turn in his last months in office, sided with the Republicans on procedural votes to try to prevent a vote on the bill and then ducked the roll call on the bill. It had the effect of a “no” vote, but at least he didn’t get recorded as voting against a tax increase for a million Arkansas families. All that we can figure is that the few hundred multimillionaires in his poor district let him know this year that they expected him to start representing them. That is how he has voted for a year.

But the House bill seems to be dead because Republicans have the votes to block passage in the Senate. They want the richest people to get the full tax cut forever and vow to block any bill that extends the tax cuts only for the middle class. A few Democrats, intimidated by the election results and fearful that people really must believe the Republican message, will oppose any restoration of taxes on the rich, and that is enough to stymie the bill in the Senate, which needs a supermajority to get anything done.

So President Obama said this week that he would compromise with the Republicans and keep the tax cuts for the rich for a few years if the Republicans will vote to continue unemployment benefits a while longer for those who still cannot find work. They may refuse to give him even that. The Republican leadership believes that we have already spent too much on the shiftless people who aren’t working and that if jobless benefits are to be continued at all, the president must cut $50 billion in spending on the poor and disabled elsewhere.

Otherwise, they will let all the lower tax rates expire at the end of the month, as President Bush and they intended 10 years ago when they passed the temporary tax cuts. Obama and the Democrats apparently would then get the blame.

The Bush cuts were to end in 2010 so that the long-range budget projections would not show the mammoth deficits. The assumption was that in 2010, Congress wouldn’t have the guts to let taxes go back up. Bush and his advisers were right: They didn’t care about the deficit. As Dick Cheney famously said, “Deficits don’t matter.”

We understand the game and why it is played. We don’t understand why the winning hand always loses.