Alexander Bolton at The Hill:
Democrats are considering a plan to delay tax hikes on the wealthy for two years because the economic recovery is slow and they fear getting crushed in November’s election.
It could mean a big reprieve for families earning $250,000 and above annually.
President George W. Bush’s tax cuts will expire at the end of the year unless Congress acts to delay their sunset.
Some Democrats are now arguing forcefully that a delay is a win-win plan that would help the federal budget without hurting the economy.
Wealthy families would not have an incentive to cut back on spending and budget writers could assume an inflow of tax funds in future years, making five- and 10-year budget projections look less scary.
Rep. John Yarmuth (D-Ky.), a member of the Ways and Means Committee, which has jurisdiction over taxes, said some of his Democratic colleagues have discussed the idea out of fear of impeding the nation’s economic recovery.
“I’ve heard some sentiment about raising the rate but not making it effective until 2012,” he said.
Derek Thompson at The Atlantic:
Sen. Kent Conrad (D., N.D.) said in an interview Wednesday that Congress shouldn’t allow taxes on the wealthy to rise until the economy is on a sounder footing. Sen. Ben Nelson (D., Neb.) said through a spokesman that he also supported extending all the expiring tax cuts for now, adding that he wanted to offset the impact on federal deficits as much as possible.
Brian Beutler at Talking Points Memo:
Has Kent Conrad done an about face and become a supporter of the Republican plan to endlessly extend tax cuts for the rich? Far from it.
“The Republicans’ proposal to me is a formula for the decline of the United States,” Conrad said last night in response to a question from TPMDC.
Conrad is among the only Senators whose hawkish rhetoric on deficits closely matches his voting record, and he surprised many — even senior members of his own party — when he was quoted widely supporting a continuation of the Bush tax cuts, including for high income earners.
“The general rule of thumb would be you’d not want to do tax changes, tax increases … until the recovery is on more solid ground,” he told reporters outside the Senate chamber yesterday afternoon.
And indeed, he reiterated that position at length when TPMDC caught up with him last night. But he also made it clear that he’s in no way supportive of the GOP position on taxes.
“In the short term, most economists would say raising taxes or cutting spending during an economic downturn is counterproductive,” Conrad said. “Now if you break it down, the high income would be the least problematic in terms of…a change in the tax rates, because they’re the least likely to spend the money. Middle income, far more important. And with [unemployment insurance], that’s actually the most important thing, because that money’s all going to get spent.”
In other words, a deficit-financed tax cut for the wealthy (as the GOP currently proposes) is the least stimulative of the options Conrad listed and ,though he’d like to preserve all of the current tax rates temporarily, tax cuts for the rich ought to be the first to go.
“[M]ost economists are saying that for the next 18 months or two years, we’re going to have continued economic weakness,” Conrad said. However, “the analysis has been done by CBO and others show that deficit-financed tax cuts actually hurt long term growth.
“I was answering what would be my reaction to the circumstance we face,” Conrad explained. “My reaction would be don’t cut spending, don’t raise taxes and that would mean on anyone. But this is the time to prepare to pivot, to put together a plan that does bring deficits and debt down over the more extended period of time.”
Jennifer Rubin at Commentary:
Nevertheless, these two plus Sen. Evan Bayh are “a departure from what appeared to be an emerging unified Democratic stance.” Maybe not so unified after all.
Remember Rep. Joe Sestak bemoaning the plight of small businesses the other day? Hmm, maybe he could join the reality-based Democrats. After all, those small businesses are the ones that will be hit if the top rate rises to 39.6%. (”Republicans and many business groups favor extending all the breaks, contending that increasing tax rates will hit small businesses hard.”) But I haven’t heard any of that from him. And really, is a guy who voted with Nancy Pelosi 97.8 percent of the time the lawmaker who is going to break with liberal orthodoxy? Not likely.
Blue Texan at Firedoglake:
Yeah, God forbid we restore the already historically low Clinton-era levels. The ’90s economy really sucked.
Jonathan Chait at TNR:
This isn’t the worst idea in the world, if they do sunset the tax cuts in 2012. There are a couple problems, though. First, it’s not a cost-effective way to stimulate the economy. The Bush tax cuts were not designed to encourage consumption. They were designed to incentivize the rich to work harder and more productively, out of the theory that Clinton-era tax rates had dampened the entrepreneurial spirit and the desire to invest. (Obviously, right? Nobody was trying to get rich in the 1990s.) Alternatively, this theory was a handy excuse to enact a policy designed to make rich people richer. In either case, nobody was claiming that it was a way to increase consumer spending. Indeed, one prevailing right-wing justification from the era was that upper-bracket tax cuts were needed because the rich save more money than the poor and middle class. (That was true, though if you want to promote saving, deficit reduction was far more efficient.)
We enacted these tax cuts, there was no job creation, debt exploded, and only the wealthiest of the wealthy profited. So tell me, Mr. Fiscal Conservative Kent Conrad, why should we not let the tax cuts for the rich expire?
And if it is not evident to you by now, the best way to get our finances back in order is to systematically ignore anyone who calls himself a fiscal conservative. If I could find a bank run by dirty hippies I would put my money there, because I just don’t trust these people in pinstripes anymore.
UPDATE: David Stockman at NYT
Barry Ritholtz at Big Picture
Sam Stein at Huffington Post
UPDATE #2: Derek Thompson at The Atlantic