Either you have a back-up plan or you don’t care, one or the other. I suggest that President Obama’s plan is more of a back-up plan than not, and it involves eagerly looking forward to the sunset of the Bush-era tax cuts. But Congress could choose to extend the tax cuts. Then what?
There is a dilemma here to be considered. Extend the cuts and not be able to fund some of the initiatives already in play or planned. Let the cuts run out, collect the extra revenue, and let the economy further slip into the abyss. It will not be an easy issue for Congress to decide, especially in a mid-term election year.
Here’s what CNN.Money said about the pending sunset on the tax cuts:
“The 2001 and 2003 tax cuts expire in six months. President Obama had promised to make them permanent for the majority of Americans. But the reality of the federal budget’s impending shortfalls is making that a hard promise to keep.”
“The most prominent Democrat to suggest as much is House Majority Leader Steny Hoyer, D-Md. In a speech last month, Hoyer said point-blank that lawmakers can’t ignore the budget consequences of extending the cuts.
‘We need to have a serious discussion about their implications for our fiscal outlook, including whether we can afford to permanently extend them before we have a real plan for long-term deficit reduction,’ Hoyer said.
In May, conservative economist Martin Feldstein, who was President Reagan’s top economic adviser and now sits on Obama’s recovery advisory board, wrote in a Wall Street Journal commentary that while he favors temporarily extending the cuts for everyone, the country can’t afford to make them permanent.
The cost of doing so for everyone would top $3 trillion over 10 years. Making them permanent for families making less than $250,000 — which tracks with Obama’s promise — would cost less but not much less: an estimated $2.2 trillion.”
The media is beginning to pick up more and more on this story and there are several valid concerns about the impact should Congree not extend the cuts. A recent article on Yahoo! Finance details the areas that will be hit with lost tax protection and exposed to higher rates. The basic story can be told through the following numbers:
Current Fed Tax Rate New Fed Tax Rate Difference on $100 Income*
10% 15% Net drops from $90 to $85
15% 28% Net drops from $85 to $72
25% 31% Net drops from $75 to $69
28% 36% Net drops from $72 to $64
33% 39.6% Net drops from $67 to $60.40
35% 39.6% Net drops from $65 to $60.40
The economy is still in a slump, millions are out of work, and there is no real recovery coming out of the billions already being spent by Washington. To add to that, the income of working Americans will drop once the tax breaks put in under President Bush expire—unless Congress and Obama do something to extend the provisions. So to quote Mr Obama, “make no mistake“! The economy WILL NOT get better by decreasing the take-home pay of hardworking Americans!
And the economy will not get better by putting more people on unemployment insurance, extending benefits, or by doing any of the other welfare-state ideas the Dems have been bouncing around.
In an earlier post, I shared an economic diagram that shows the impact of lost consumer buying power. If workers aren’t losing that power due to layoffs, they will surely lose it when there’s less in their paycheck every few weeks.
The only real and sustainable recovery comes from the pocketbooks of the consumer. Reduce income and especially disposable income and you throttle down the consumer engine that drives production. Anyone who thinks that the government can pull us out of this recession or depression hasn’t honestly or fairly evaluated what it is that drives an economy.
Of course, in order to allow consumers to keep more money in their pocketbooks, the government has to reduce its own spending. But that has a consequence: Reduce spending and all those who have come to depend on handouts (not those who legitimately need them) will jump ship and leave the Dems high and dry. That’s not what the Obama adminsitration wants or needs if the Democrats are to retain power.
So what happens if the tax cuts are extended? President Obama has less money available to pay for his social bailout and handout programs. The power he derives from handing out candy to schoolyard bullies and naive little children will be diminished. He would have to begin to deliver on his campaign promises (or not) and focus on governing the executive branch without lamenting what it is that he inherited from President Bush.
Besides, Obama’s been in office long enough now to have gotten over the “look at this mess” syndrome.