Ben Nelson has come out for extending all the Bush tax cuts “until Nebraska’s and the nation’s economy is in better shape, and perhaps longer, because raising taxes in a weak economy could impair recovery.” It’s funny that he throws Nebraska in there, which is sitting on 5%. It’s also funny that he calls the extension an action “to help the economy” like the stimulus package in 2009, even though this would merely be an extension of current tax rates, which aren’t boosting the economy in any way.
He wants to pay for the tax cuts “as much as possible” but he’s not super-concerned with it, because
the tax cuts primarily affect rich people we have to bring certainty to families and businesses. By the way, the only uncertainty I see from families is whether or not they’ll have a job in the next few months.
As for whether keeping tax rates on the rich would help the economy, McClatchy takes a look at the issue, and finds that the benefit to be mild at best. If the money from those taxes were re-channeled in the short term into more stimulative measures to create jobs, that actually WOULD help the economy. And it should always be noted that, if the Obama plan goes through and all the tax cuts get extended except for the top two tax brackets, the rich would get MORE tax relief out of that than anyone, because of the structure of marginal tax rates and the different tax credits involved.
But I think we see the writing on the wall here. A “short-term extension,” where Nelson seems to be going, kicks the can down the road and delays the debate. I could envision discussions about “taking the tax argument off the table” inside Democratic war rooms. You’re already hearing “the Republicans made us do it” coming from the leadership:
Senate Majority Leader Harry Reid (D-Nev.) has signaled that he will move a tax package that aligns with Obama when Congress returns next week, but it is far from clear whether he has the 60 votes necessary to pass it.
“This is a proposal that should enjoy broad support of Democrats on the Hill,” a Reid staffer said. “However, the only way we can get it done is if Republicans agree to support it.”
Incidentally, George Voinovich (R-OH) has already rejected extending all the tax cuts permanently, saying that would be a fiscal disaster. And this temporary extension just moves us in that direction.
One alternative option I could see is a permanent extension of the “middle-class” tax cuts (which in raw dollars affect the rich more) and a sunset of the extension on the top two tax brackets. Or, the tax cuts could be cut off at the $1,000,000 mark, essentially putting a new marginal tax bracket into the tax code.
Either way, it just looks like that’s where we’re headed. And with the President unwilling to make a veto threat, I don’t see a lot of resistance. We’ll apparently see this play out starting next week.
UPDATE: It’s not just Nelson. Several House Democrats in tight races are talking about extending the tax cuts, too.