A month or so back we talked briefly about how the 2001 and 2003 Bush tax cuts are expiring at the end of this year. Since then there has been a lot of additional talk about whether or not the Obama administration will be renewing the tax cuts before the end of the year. The consensus is that they will most likely push for the tax cuts to be renewed for most lower and middle income families because it is an election year – but there have already been pledges by Obama to let the tax cuts expire for higher income earners.
There is also speculation as to whether the tax cuts will be extended for a short time, like one or two years, or whether they'll be made permanent. Some wonder if they'll be renewed at all due to the huge deficit that the nation is currently running. Some think that the administration will just kick the can down the line, let the tax cuts expire and hope no one notices. From CNN:
They're often called the “Bush” tax cuts. But at this point they might as well be called the Bush-ama tax cuts.
That's because President Obama has embraced the tax relief measures introduced in 2001 and 2003, proposing they be extended indefinitely for most Americans. If lawmakers do nothing, the measures expire Dec. 31
The tax cuts lowered income and investment tax rates, boosted the child credit, reduced the estate tax, and narrowed inequalities affecting married taxpayers.
Another reason for the new Bush-ama moniker: Like President Bush, President Obama has not called on Congress to pay for the cost of the tax cuts. In fact, the extension of the cuts is exempt from the new “pay-go” rules that Obama signed into law recently.
Extending the tax cuts for most Americans will increase the federal deficit by an estimated $2.2 trillion over 10 years.
Deficit hawks are uber-frustrated.
An Election Year Tax Cut Extension?
My guess is that the tax cuts will be extended before the end of the year – and most likely before the elections in November. No one wants to campaign on the promise of raising taxes – especially in an election as hotly contested as this years is slated to be.
Allowing the tax cuts to expire would essentially be raising everyone's taxes! To find out what your rates might become if they expire, check out this post on the Bush Tax Cuts.
So when will they be taking the issue up?
..it's not clear when Congress will take up the issue of the 2001/2003 tax cuts. One theory is that they'll vote to extend them before their August recess to score political points before the midterm elections in November.
“It would look ugly to go home and campaign for five weeks without having done something for the middle class,” said Clint Stretch, managing principal of tax policy at Deloitte Tax LLC.
On the other hand, the legislative agenda is already fairly packed.
Anne Mathias, director of research at Concept Capital's Washington Research Group, is in the camp that believes Congress may not address the issue until December.
It's also not clear yet how long lawmakers might opt to extend the tax cuts. There had been a push by both parties to make them permanent. But some believe extending them for a year or two may be the smartest move given current political and economic constraints.
My only concern for the tax cuts not being renewed is that congress and the President may keep pushing the tax cut renewal further back, and that eventually they might get axed altogether due to “budget constraints” or “deficit reduction”.
An Permanent Extension Of Tax Cuts Or Only A Temporary Reprieve?
Many are saying that even if the tax cuts are extended or renewed, that they're only going to be temporary because our current budget is unsustainable. The government is spending at an unprecedented rate, and that at some point tax rates WILL have to go up.
No matter how long the tax cuts are extended, no one should bank on low rates forever, Stretch cautioned. The country's long-term fiscal condition is too precarious for that.
“No matter what happens, Americans' taxes are going up one way or another. The middle class is going to have to be called on to help reduce the deficit. There's not enough fiscal capacity if we just tax the top 3%,” Stretch said
One thing I can't understand is why government officials and others NEVER talk about government being called on to make cuts. Once government programs get funded, it seems like they always quickly become un-expendable. In my opinion it's shameful just how un-disciplined our government has become in it's spending. If we were to do the same in our own personal lives, we'd be bankrupt in no time flat.
Time to cut government spending, and start electing politicians who are willing to make tough choices to make cutbacks – just like we're forced to do when we come upon lean times!
What are your thoughts on the tax cuts? Will they be renewed temporarily – become permanent or not renewed at all? Do we have a problem with insufficient tax revenues or is there a problem with government spending? Tell us your thoughts in the comments!