July 13, 2010

Democrats in Congress haven’t made any moves to extend the Bush tax cuts of 2006, so workers of all income levels can expect to see a 5% increase in their income taxes, and additional tax increases from a number of other areas.

The taxes affected include the capital gains tax, the alternative minimum tax, education deductions, sales tax exemptions. They also include small tax increases, like a rollback in tax breaks for tuition expenses and donations of books to public schools.

Andrew Moylan is the director of government affairs at the National Taxpayers Union.  He is livid at the prospects and wrote this past weekend that "if you believe the current consensus, we could potentially see the top income tax rate hiked back up to 39.6%, an attempt to reinstate the death tax at something like 45%, and the end of the lower 15% rate on capital gains and dividends!.” That's on top of a string of other tax hike proposals pushed by Democrats, like a cap-and-trade national energy tax or a financial transactions tax.

It goes without says that it is very unlikely Democrats will stop the tax cuts from expiring, but if they do, they won’t make a move until after the November elections. That allows them to punt on the issue when votes are at stake, and maintain high spending while appearing to be fiscally responsible.

Some Democrats are still making motions to fulfill President Obama’s promise that tax rates would not be raised on those making under than $250,000 – a promise long since broken after Obamacare – by cooking up ways for lower-income earners to be exempt from those tax increases. Like most other Democratic policy proposals, no clear plan is on the table.

If allowed to expire unconditionally, the Bush tax cuts would bring in a new $4 trillion over the next 10 years, providing a ready source of funding for President Obama’s ever-extending federal programs, but also taking a significant chunk out of the national debt. That’s one reason Democrats are giving to as a reason behind their push to let these tax cuts expire; they believe that it’s hypocritical to want to lower taxes if one is legitimately concerned about higher deficits.

In an analysis writtent this week, Donald Marron at the Brookings Institution explained it this way: “It’s hard to imagine that spending restraint alone can solve America’s long-run fiscal woes. Facing an aging population and rising health care costs, the federal government will continue to expand even if policymakers take serious steps to trim spending. Cutting back on loopholes and other tax expenditures, taxing carbon emissions, introducing a value-added tax – all of these deserve attention in case America decides that it wants to finance a substantially larger federal government.”

But Republicans question why Democrats would effectively increase taxes when the economy is in the pits and millions of Americans are out of work. The answer is simply because they believe that higher taxes don’t curb growth. That’s the root of the problem, says Moylan.

Over at the National Taxpayers Union, Moylan sarcastically says that we could eliminate our deficit and create a surplus tomorrow by enacting a $2 trillion tax hike immediately. But that wouldn't be responsible and it sure wouldn't be smart. Seeing as the federal budget has doubled in little more than a decade, it's clear that Washington has a spending problem, not a revenue problem.

The test for the November mid-term elections will not center on how many candidates want to cut spending, but how many want to cut taxes and drastically cut spending. We all know the Progressive-Socialists Democrats want to do neither.

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