Understandably, the president compromised in late 2010. But the president shouldn't compromise this time. Assuming that the Republican-controlled House won't pass a bill that extends the Bush tax cuts only for taxpayers under $250,000, the president's next move is clear.
Let ALL the Bush tax cuts expire. Find out why in the extended part of the diary.
You absolutely must understand the key component of tax policy embodied in this quiz: changes in the rate on a tax bracket affect taxpayers whose total taxable income falls within that bracket or any higher bracket.
The Bush tax cuts aren't really all that great for middle-class (or working-class) Americans. For taxpayers with single filing status in 2012 with taxable income of no more than $35,350, the Bush tax cuts save them at most $435 -- and they save all wealthier taxpayers with single filing status that same $435, including the very wealthy. For married taxpayers filing jointly in 2012 with taxable income all the way up to $70,700, the Bush tax cuts save them at most $870 -- and they save all wealthier married taxpayers filing jointly that same $870, including the very wealthy.
Right now, the Republican-controlled House won't raise taxes because Grover Norquist. Fine. Just let all the Bush tax cuts expire.
So the tax rates for 2013 nominally go up. But there's over a year until anyone has to actually pay those tax rates, during which the president can propose the Obama tax cuts. The Obama tax cuts look suspiciously like the Bush tax cuts for the first $250,000 of taxable income -- and note that this is still a tax cut for the richest Americans, in fact for all American taxpayers. It's just not as large as the Bush tax cuts for the wealthiest Americans.
Do you think the Republican-controlled House will seriously be able to resist the Obama tax cuts, especially under the proposed second-term Obama strategy of lobbying the American people directly? I don't, but suppose they do resist. 2014 would then be a Democratic wave election in Congress.
One last time: we can reach a great negotiating position and get a lot of great changes in tax policy that we want if we just LET ALL THE BUSH TAX CUTS EXPIRE.