ANALYSIS

Bush Tax Cuts Likely to Stay in Place Despite the Spitballs

Neither Republicans nor the White House will get everything they want out of the deal.

By Aamer Madhani and Matthew Cooper

+

House Minority Leader John Boehner.(Alex Wong/Getty Images)

Updated at 9:a.m. on November 12.

Once the White House and Republicans stops firing spitballs at each other over the Bush tax cuts, the two sides will inevitably hammer out a deal. The question is, what kind?

At issue are the cuts enacted in 2001 that will expire at the end of this year. The Obama administration wants the rates to rise on those who earn more than $250,000 annually while the Republicans want to keep the cuts for all earners.

It’s a safe bet that no one’s going to get everything they want. So the most likely outcomes are either that all of the tax cuts will be extended for a limited period of time or that the over-$250,000 cuts will be extended temporarily while those for lower incomes will be made permanent. Either way, Obama and the Republicans will have to compromise quickly before taxes are raised on an already angry electorate.

Between now and then, there’s going to be a lot of jockeying and brinksmanship.

ADVERTISEMENT

In a news conference Friday in Seoul, South Korea, Obama reiterated his support for the permanent extension of the middle-class cuts, calling it his “No. 1 priority.” But he also stressed that he has not wavered in his position on the cuts for the top 2 percent of earners.

“I continue to believe that extending permanently the upper-income tax cuts would be a mistake and that we can’t afford it,” he said. “And my hope is, that somewhere in between there we can find some sort of solution.”

The comment came in the wake of a brouhaha over remarks from senior adviser David Axelrod, published in the Huffington Post Thursday, that suggested the White House was ready to accept an across-the-board continuation of the Bush-era tax cuts.

Michael Steel, spokesman for the putative next House speaker, John Boehner, didn’t miss the chance to take a shot at the White House: He sent out an e-mail celebrating that Axelrod was finally seeing things the Right way.

But in comments to National Journal later in the morning, Axelrod clarified his statement and said the White House is not caving in.

“We’re willing to discuss how we move forward,” Axelrod said in an e-mail to National Journal, “but we believe that it’s imperative to extend the tax cuts for the middle class, and don’t believe we can afford a permanent extension of tax cuts for the wealthy.” It’s a notion that the president raised as far back as his interview with National Journal in October.

Henry Aaron, an economist at the Brookings Institution who has doubts about whether extending the tax cuts will benefit the economy, said that it is all but certain that they will be extended for all Americans.

If you polled all American economists and gave the median thinker plenipotentiary powers, he or she would likely say its best to leave tax rates where they are for the next year or two and then raise them, Aaron said.

What worries Aaron is whether politicians will have the courage to say yes to low taxes now with the understanding that we have no choice but to raise rates in the not-so-distant future.

“There are some forecasts that really look very depressing, and two years from now you’d be on the eve of congressional and presidential elections,” Aaron said. “If somebody comes forward then and says, ‘Now is the time to raise rates,’ I think with one voice everyone presenting themselves to the electorate would say as they say in New Jersey: ‘Fuggedaboutit.’ ”

The whole back-and-forth has been a useful reminder of how banal Washington political debates can be. For all the talk about making tax cuts permanent, no cut is ever really permanent. They may not have a built-in expiration date like the Bush cuts did—otherwise they would have skewed deficit projections—but tax rates can change all the time and probably will. No Congress is bound by a previous Congress to leave the tax code alone.

And the semi-hysterical reaction to a preliminary report from the co-chairmen of the president’s deficit commission is a reminder that a more serious debate about spending seems impossible, even after an election. When Erskine Bowles and Alan Simpson released their proposed cuts—a not surprising pile of cuts to entitlements, tax hikes, and other things no one likes—the reaction across the political spectrum was brutal, even though the commission has no power and this wasn’t even the whole commission’s final report. December’s Bush tax-cut fight will be ugly. What comes after that will be even worse.