As we get nearer to election season the rhetoric surrounding one of the biggest tax issues this year is coming at us at a feverish pace. The Bush Tax Cuts are expiring this year, and without them being renewed for all taxpayers we could see one of the largest tax increases in some time. Both parties vow to at least renew the tax cuts for those making up to $250,000, but if they aren’t able to come to an agreement, the tax rates will go up for everyone come January 1st. With the inability of the two parties to work together, it is starting to become a distinct possibility in my view that nothing is done in time to prevent them from going up for everyone.
Bush Tax Cuts Expire January 1st. What Is To Be Done?
Within the past few days the GOP has come out with what they call a concession, a temporary 2 year extension of the tax cuts for all taxpayers. The idea is one that was promoted by Obama’s former budget directory, Peter Orszag earlier this week.
House GOP Leader John Boehner offered a concession on tax cuts, suggesting Republicans would accept a two-year extension of all the Bush-era tax breaks rather than the permanent extension they have been seeking.
The GOP proposal is an alternative to Democratic leaders’ plan to allow the top two rates to rise next year to pre-Bush levels. A Republican release described Boehner’s alternative as a way to prevent “job-killing tax hikes” on small businesses.
Boehner, an Ohio Republican, outlined the plan Wednesday morning on ABC’s “Good Morning America,” a day after the White House made it clear it had no interest in a two-year extension. The idea had been floated on Tuesday by Obama’s former budget director, Peter Orszag, in an op-ed.
Obama says he instead favors permanently extending current tax levels for the middle classes, defined as families making less than $250,000, while allowing tax breaks for higher earners to expire at the end of the year. The president and Democratic congressional leaders evidently have decided they like the political contrast with the GOP, even though some of their rank-and-file members and candidates have defected to the Republican view.
The Obama administration and congressional leaders seems dead set against renewing the tax cuts for all taxpayers, saying that they want those making more than $250,000 to have their rates go back up. They’ve drawn a line in the sand that they don’t seem willing to cross, even if some rank and file democrats and candidates seem to think an extension would be wise.
Despite their stand right now, some think that a temporary extension could become part of a deal AFTER the election, when the posturing and campaigning is done.
Despite the White House’s statements rejecting the two-year extension of all the Bush tax cuts, that could yet become the basis for a deal, probably after the November elections.
Small Business Owners Ask For Extension Of Tax Cuts
As the debate rages, small business owners are jumping into the fray. The Obama administration has trumpeted a small business lending fund that it will be pushing later this week that would make more than 30 billion available in loans to small business owners, along with tax breaks for capital investments. But independent business groups are saying that an extension of the Bush tax cuts would help them more.
The Obama administration has targeted small business with laser-like focus, pushing a $30 billion small-business lending fund in Congress and, later this week, rolling out a tax break allowing businesses to deduct 100% of qualified capital investments.
But the chief economist at the National Federation of Independent Businesses said today that small business doesn’t need more tax relief. Instead, he said, Washington should aim its firepower at consumers so they begin spending money and creating demand for the products and services small companies provide.
“If you give a small business guy $20,000 he’ll say, ‘I could buy a new delivery truck but I have nobody to deliver to,’” said William Dunkelberg, chief economist for NFIB.
Rather than aim more tax relief at business, Dunkelberg said Washington should extend the Bush-era tax cuts for everyone – including those making above $250,000.
“History shows that letting Washington have the money and spend it is very ineffective,” he said.
The administration’s latest idea, which would allow businesses to temporarily deduct 100% of “qualified” capital investments, can help “on the margin,” Dunkelberg said. With capital-spending by small business at a 35-year low, some firms will naturally take advantage of a temporary tax incentive to replace products. But Dunkelberg said he thinks most small businesses will hold on to their cash until more certain economic times
Economists Discuss an Extension Of The Bush Tax Cuts
Others, including economists have said that an extension of some sort should be considered. Economist Tom Gallagher says what form he thinks an extension should take:
They should extend the rates for the top two brackets for one year (through 2011) and the rates for the bottom four brackets for three years (through 2013). This would accomplish several things. First, it would address the uncertainty about the near-term economic outlook. Second, by de-linking the rates for the top two and bottom four brackets, it would automatically put in place something like Obama’s plan for 2012, when the economy should be able to withstand some further fiscal drag. Third, it should trigger a broader debate over deficits in the year after the presidential election, thanks to the expiration of the tax cuts for the bottom four brackets.
Only time will tell what is done, but at this point, it is looking more and more likely that any extension of the tax cuts, for everyone, or just for the lower tax brackets may have to wait until after the election. I do think we may want to consider the fact that an extension might not take place at all if no agreement can be made, and then each party will blame the other for getting nothing done. We shall see!
What do you think will happen with the Bush tax cuts? Will they expire for everyone, or be extended for only lower tax brackets? Will they be extended for everyone? Do you think they’re a good idea, in combination with some form of reduction in government spending? Tell us your thoughts in the comments.
What ever anyone’s thoughts on the cuts from a political standpoint, the economy is still too weak not to extend them. The two year extension is a logical step, at least it buys time until it becomes clear that a recovery is under way.
Not hearing much “water cooler” chatter about this though. Could be the most important unnoticed issue of the day–even with an election looming in less than 2 months. Not sure the public sees the significance.
They’ll see the significance when they are paying more for products and services. What bothers me most is that instead of the Government evaluating and adjusting their out-of-control spending habits, they think raising taxes to even things out is the answer. It’s really no different than an individual who has a maxed out $10,000 credit limit, saying, “if I only had a $15,000 credit limit my problems would go away.”
The problem has always been Government spending, not a lack of revenue. I hope the next election Americans make a choice to fire whoever has taken part in this outrageous display of financial irresponsibility—whether that be Republican or Democrat. KICK THEM OUT!
This issue was one of the primary platforms that President Obama campaigned on. The majority voted for this change. John Boehner’s supposed compromise of a two year extention is to buy time until the next election when they hope to put the Republican party back in office. Nothing secret about that. Guess the biggest issue is whether the wishes of the majority on tax policy will be enacted or whether they will be stopped by the minority.
As much as I hate to admit it Carol, Americans didn’t vote for “change” as much as they voted to make history. For the rest that thought they were voting for “change”, to a large degree, didn’t understand, or pay attention to, what “change” meant.
BTW, nothing seems to have changed much. Everything the left and the right hated about Bush has been expanded to new levels. Corruption, out-of-control spending, lack of transparency, the war, and a number of other things.
Giving Americans the benefit of the doubt, they still didn’t vote for what they got, considering what Obama has done since being in office.
Now that America has realized what kind of President they voted for, they have since decided to speak out. The true minority is that which Obama’s politics largely represent—the extreme liberal left, and the rest that have no idea what’s going on. What’s that, 20% of America?
Actually, a majority want the tax cuts extended according to a Rasmussen poll from last month:
Fifty-four percent said they wanted the Bush cuts to stay in effect, according to the Rasmussen survey of 1,000 likely voters taken Aug. 1 and 2.
Not surprisingly, an overwhelming majority of Republicans — 83 percent — want to continue the tax cuts. More than half — 58 percent — of independents agree, compared to only 23 percent of Democrats.
SOURCE
Well, however it is decided some will view it as a good thing and others will not. The one important thing to remember I think is that many Christians of all ethnic backgrounds voted for Obama. It is important to know why. We as Christians do have the “swing” vote and in the last election the swing went to Obama. There are the fringe on either end of the party spectrum whose voices are the loudest but not always representative of the the quiet majority.
The primary issue in the last election was the economy. Politicians have put campaign power above the needs of the people. It has been two years since the bailout and supposedly the brightest minds in the country are working on it and the news only shows fighting and division. They should put some of the party leaders into a sequestored room and tell them they cannot come out until a agreed upon plan is formalized. Shame on the politicians for putting power before people while millions go homeless and are on foodstamps.
Personally I think we are missing the real battle. What we see in the media is merely a diversion and distraction. The real battle is between the financial institutions and the people. And, the major banks wanted to bring the people into bondage as surely as the Egyptians held the Isrealites. In our time though it can be done with contracts and interest.
I thank God for all the personal financial blogs who strive to teach Biblical principles. That is the biggest ray of truth I see in the financial rhelm right now. Thanks Peter for the interesting post. Sorry if this is too long. Bump it if you want. :)
“Personally I think we are missing the real battle.What we see in the media is merely a diversion and distraction.”
Yes Carol, amen, THAT’S the problem! Everything is so shrouded in mystery and complexity that the real issues stay well hidden. But I have a feeling that that’s what the majority want.
Think about it…When someone stands up and dares to tell the truth, the people don’t want to vote for him or her! IE, everyone wants taxes cut, but will the masses of tax cut voters also support corresponding cuts in cherished programs like social security, medicare, student loans, etc, etc? We’re more addicted to the public trough than most are willing to admit.
I agree Carol, “Shame on the politicians”—from both sides who have cared more about furthering their careers than what’s actually in the best interest of all Americans.
Thankfully, we can trust God Almighty!!
I’m not sure how much poll numbers mean anymore. 54% isn’t a huge majority, and what the polls can’t indicate is how strongly that majority really feel about it. Do they feel strongly enough to vote in force to bring about an historic shift in congress? We’ll see.
Then what do you do with Candidate X who promises to vote for extending the tax cuts, but who also supports five other programs you’re completely opposed to???
Brad’s point about “the rest that have no idea what’s going on” is right on the money! Everything is so complex and convoluted that no one’s really sure what to do. I don’t blame the voters here–complexity seems to be the order of the day and there’s only so much any of us can take in while we’re busy working, paying taxes and bills, raising our families and trying to comply with–increasing complexity!
In biblical times of confusion God often rose up enlightened leadership–I say we pray for that…
Amen to that.
You’re right Kevin. Poll numbers really mean nothing unless the people who answered one way or the other follow through.
On the complexity issue. Absolutely! Most people cannot read let alone comprehend the complexity in what Congress does. Taxes, Health Care Reform, and anything else which seems to require thousands of pages explain, yet still need the interpretation of a lawyer to understand. Even if you were to read 2000 pages, you wouldn’t understand a majority of it.
Praying for enlightened leadership is a great plan Kevin!
I think they will be extended, but like you said above, it’s good drama before the elections. I think the government can do better in collaborative efforts so maybe a reduction in government spending will help them focus on that.
One of the things that has really made an impact on me was seeing before and after pictures of the presidents we have had. It is almost as if they turn gray overnight. This is maybe the one thing that crosses all party lines. It is an extremely difficult job especially during these times. I cannot even imagine waking every morning knowing how many absolutely hate them and would like to kill them. Much of the motivation is power and money. Whatever they are trying to acheive they have only 8 years maximum to do it and that is with fierce opposition every step of the way. Not true of the senators who can make a lifetime career of the office by smoozing the right people. Although I definately have my positions on issues I have learned and committed to pray for our president as the Bible instructs. I did for President Bush and I do for President Obama. God Bless America. I’m happy to be here.
I totally agree on the presidents aging Carol. I was noticing that even Pres. Obama is aging in the less than two years he’s been in office. That says something about the magnitude of the job.
That’s a tougher job than any of us can imagine. If anything goes wrong it’s the president’s fault, and Congress gets a pass because there are 535 of them and they can hide in their numbers. The president has to work miracles to please the people, and do it by corraling an unruly congress!
I know I couldn’t do the job so I’m sympathetic. We may not like to accept this, but our country may have become fundamentally ungovernable. If that’s true, then we have bigger problems than any single issue or election.
If you notice with each election, we seem to change styles and flavors more than policy and direction. Perhaps the various administrations have less flexibilty and power than we like to believe.
An extension or continuation of the tax cuts for small business owners is a key to getting this country out of this recession once and for all.
Its plain and simple…
As a small business owner, I can say with confidence that allowing the Bush tax cuts to expire for the wealthy will be devastating for us. We own a small plumbing and HVAC business and most of our work is building homes for the wealthy. I want them to have money to spend on gigantic weekend homes and fancy fixtures so that we can have money to spend on rent and groceries.
We’ll take WORK and the ability to earn our own money over a loan from the government any day!
The supposed $50 billion small business “targeted” stimulus is just another attempt by the feds to tell small business how to run their business. Let’s see if I get this right, the feds take some money from me,
launder it in Washington-take their cut-and then allow some small businesses that follow their dictates-after a mountain of paper work and audits-to get a portion of the money back.
Here’s an idea-just don’t take the money from me in the first place, I can decide how to spend it, invest it, hire someone or whatever and the only loser in this situation is some bureaucrat in Washington. Sounds like a plan.