In the spring of 2009, President Obama approved a myriad of middle-class tax cuts as a part of the Recovery Act. Some of these were tax credits for various things like children, education or home purchases--the sort of thing that gets tallied up at the end of the year when you file. Some were deductions in taxes on payrolls. The IRS issued guidelines to employers to adjust their tax withholdings from their employees' paychecks. The administration touted these tax cuts repeatedly by saying 95 percent of families received a tax cut. The president even mentioned it in his State of the Union address this year. Despite all this, many polls have indicated that people don't know their taxes went down, and many people think their taxes have gone up! This CNN/NYTimes poll from February noted that only 12 percent of the public believes the Obama administration cut taxes. Twenty-four percent said their taxes went up. The majority, 53 percent, said their taxes hadn't changed at all.
Obama cut taxes and got nothing for it politically. This shouldn't happen again, but it is about to. If we had a rational government, the tax cuts would simply expire for everyone and our fiscal picture would improve. But this tax cut, like all tax cuts, is not about policy. It is about politics. President Obama is about to approve another round of tax cuts, this time including the rich. Like last time, there will be some back room negotiations, some posturing from podiums in Washington, final passage, a signing ceremony while people are at work, etc. Once again, a tax cut will pass largely unnoticed with no political benefit to the president. It doesn't have to be this way.
There was a line in this Bloomberg article that jumped off the page:
Because it takes weeks to prepare withholding schedules, the Internal Revenue Service probably will have to assume the cuts will expire and direct employers to increase payroll deductions starting Jan. 1, experts say.
The President framed the issue well in his Saturday address, but to truly capitalize on this he has to do more.
The fact is, we really don't know if Congress and the President will be able to reach a compromise before the end of the year. People would find it surprising to learn their taxes are going back to what they were under President Clinton. What if the President issued a directive to the IRS to send "guidance" letters out to every single taxpayer informing them that next year, temporary tax cuts approved by former President Bush will expire.? That would give people time to plan accordingly. The IRS could provide taxpayers with some sort of table they can use to quickly compute how much they are going to owe. Make it clear that the expiration of the Bush temporary tax cust could impact your 2010 tax refund.
Republicans will scream bloody murder, but President Obama would simply be doing his duty as chief executive. He can't assume that new tax cuts will pass. He has to prepare to faithfully execute the law as it is. This IRS directive would be necessary and proper. Remember, this entire scheme of expiring tax cuts was set up by the Republicans in Congress and the Bush Administration. He didn't create this, they did. Let that simmer for 30 days.
If compromise is reached, which will happen, there will be a signing ceremony at some point. The "Obama Permanent Tax Cut" will pass, including a tax cut for the rich. I believe the American public would be happy to learn that President Obama has passed permanent tax cuts to replace the temporary Bush tax cuts. Therefore it shouldn't be difficult to aggressively sell the "Obama Permanent Tax Cut for the middle class." Especially after all those IRS letters go out. If President Obama is going to compromise and break campaign promises, he may as well get something in return. Like a bump in the polls, perhaps. To break a campaign promise for compromise and get no political benefit is political malpractice of the worst sort.
The idea here may not be the best, but the concept is simple: President Obama has to play politics with tax cuts. If he wont make it political, he wont get any credit, but will almost certainly get plenty of blame for the deficits these tax cuts will cause. This administration doesn't sell its policies effectively nor get credit for doing good. Even the president now admits this. Nobody wants middle-class taxes to go up during a recession. It may make good fiscal sense, but it is bad politics. Since the entire tax argument is a political stunt anyway, someone should get the credit. The public has to know who is cutting middle-class taxes permanently and who is to blame for bringing us to this point in the first place.