The renewed battle over the expiring Bush tax cuts, which has begun with Republicans clear on their goals and Democrats mired in confusion, will begin over the summer with the House of Representatives set to vote on a full extension in July.
House Republican leaders on Friday unveiled a legislative calendar for the summer, revealing plans to hammer President Obama and Democrats on the economy, energy, taxes and other divisive issues in the months leading up to November’s elections.
The schedule includes a July vote to extend the Bush-era tax rates for all taxpayers – a move dismissing Democratic calls for separate votes on tax cuts for different income levels.
Most of the votes this summer are message votes, designed to play to the November elections rather than substantively pass legislation. I couldn’t help but noticed that Ron Paul’s bill to administer a more sweeping audit of the Federal Reserve is on the agenda and will get a vote in the House this July. Other than that, it’s a narrow set of ideological measures.
And that includes the Bush tax cuts. In his memo to the caucus, Cantor writes that “Very little of what we do this summer will be able to offset the harm to small businesses if the largest tax increase in American history is allowed to go into effect on January 1, 2013. In fact, the Congressional Budget Office (CBO) warned us earlier this week that this massive tax increase will likely contribute to what would ‘probably be judged to be a recession.’”
This is a bit comical in that Republicans have begun to return to some Keynesian roots. What they are basically saying is that they agree with the CBO’s assessment that tightening fiscal policy in the middle of a fragile economy will turn us back to recession. Just because they focus on tax cuts for the rich and defense spending to the avoidance of all else doesn’t mean that the same principle doesn’t exist. In the end, they are saying that a smaller budget deficit will harm the economy at this time. In some cases they’re saying this explicitly. I happily agree. And it does represent an opportunity on the left to concur, though the Democratic establishment is currently too busy proving that they believe in austerity.
It appears that the extension of the Bush tax cuts will not be permanent. Cantor alludes to Rep. Dave Camp and the House Ways and Means Committee working on “pro-growth tax reform,” so the extension is just a temporary step to get us to that point. However, it’s pretty obvious that this “pro-growth” reform will at best be revenue-neutral relative to the Bush-era tax code, and at worst both cut taxes more and shift the burden from the rich to the poor.
The Democratic side is more muddled, with Chuck Schumer and now Nancy Pelosi drawing the line on the Bush tax cuts at $1 million in annual income, describing anything lower than that as “middle-class tax cuts.” This has kicked up some dust on the left, with Americans for Tax Fairness launching to prod on the original number, the one in the Obama budget, of $250,000 a year, as the dividing line for allowing the tax cuts to expire. This also is an artificial distinction. But there is the near-term prospect of tightening fiscal policy to the degree that it hurts the economy. So there’s a balance to be struck here.
With Democrats needing cover and Republicans adamant, the possibility does exist for gridlock, leading to the expiration of all the Bush tax cuts. That could be a preferable scenario, because it leads to the opportunity to rethink the tax code rather than being lashed to an insufficient and unequal system put in place by George W. Bush.