Whatever the final outcome of the current tax rate conundrum in Washington, life will go on. However it would be nice, if before the outcome is determined, our economic future would begin to take a frontseat in the debate, which up until this point seems to have been exclusively a balancing of political considerations. I know political considerations cannot be ignored, but the economy must not be ignored either. And what economists from David Stockman to Paul Krugman seem to agree on is that the best thing for the economy is to let all the Bush tax cuts expire. That's why Chuck Schumer's statement that Democratic Senators may be willing to let all those tax cuts expire is so welcome. It is the one realistic shot we have at a decent outcome. And realistic is the key word. It is also the reason 41 could become the new 60. And the democratic message is simple: Extending tax cuts for the wealthy is economically insane.
Of all my frustrations involving the tax rate debate, the most vexing is how the economic argument has been ignored. This should be the basis for any consideration of tax policy, yet it has become the least used reason for any course of action. And according to a wide spectrum of economists, the best course of action for the economic welfare would be to let all the tax cuts expire.
Today with Senator Schumer's pronouncement, economic considerations may finally come into play. If 41 Democratic Senators, can be convinced to withhold there support for any plan that couples the future of tax cuts for those making over 250,000 and the future of tax cuts for everyone else, they will have a simple economic argument to support their action: extending tax cuts for the wealthiest is economically insane. And that will help to overcome the problematic political considerations.
There are many ways to play this politically, but this is the first time I've heard a Democrat in a leadership position champion what I consider the only realistic chance we have of getting a desired outcome. If the Senate Democrats make it clear, that for the good of the economy, they will filibuster any legislation that couples the tax cuts for the wealthy with tax cuts for everyone else, they will have the political leverage they need to achieve a desired outcome. Because, for the first time, the GOP has a lot to lose if nothing is done, because it must be understood that all of these tax cuts, even the so called middle class tax cuts, greatly favor the wealthy.
The CBO Report pointed out the least effective method of stimulating the economy was extending the Bush tax cuts. And of course the part of that extension that is most ineffective is the extension to those making above 250,000. However any number of alternatives, the Report shows, would be a far better use of the money. Among those alternatives, extending unemployment benefits, a tax credit for businesses that increase their payrolls, a payroll tax holiday, and a one time payment to social security recipients are recommended. Democrats should introduce such proposals, as appropriate alternatives, at the same time they are withholding support for the tax cut extensions.
The CBO Report explains that tax cut extensions are so ineffective as stimulus, because they are so disproportionately directed toward the wealthy. This includes the tax cut for those making under 250,000. Most of these tax cuts will be realized by those making over 100,000. And this is the segment of the population that is least likely to spend the money. This is also the segment of the population that the GOP must keep happy. It's a very simple gambit that the Democrats can afford to play, it's the GOP that now has everything to lose.
Our great disadvantage in the current political climate is that we want to accomplish things. Blocking accomplishments is not a difficult task, it doesn't even require a majority. We have seen a single Senator derail plans on more than one occasion. At last, if we choose to use it, we have this advantage. I am glad to finally see some confirmation, that such a course of action is at least understood to be available to us, and may even be being considered. Now Senator Schumer, were you serious, or merely posturing? If you were serious I thank and congatulate you. Now please follow through.