William (aka Bill the Godfather)

William (aka Bill the Godfather)

Tuesday, August 24, 2010

No new taxes? Not so fast

Mitch Daniels is not a communist, a socialist, or even a garden-variety liberal. On the contrary, he’s a conservative Republican who’s served at the pleasure of two Republican presidents (Ronald Reagan, George W. Bush) and now occupies the Indiana governor’s mansion. He’s even seen in some GOP circles as a potential 2012 presidential nominee. And yet when I asked Daniels earlier this month whether the federal government might have to raise taxes at some point in the future—regardless of which party was in power—his answer was yes.

“At some stage there could well be a tax increase,” he said. “If you believe our fiscal mess is republic-threatening, and if you have to take the third- or fourth-best approach, at the end of the day, I’d do it.”

Welcome to Grover Norquist’s worst nightmare. For the last 20 years, no one principle has united the Republican Party quite like its violent opposition to tax increases—except, perhaps, its equally ardent obsession with tax cuts. When liberal economist Paul Krugman described the GOP as a horde of “tax-cut zombies” just “shambling forward, always hungry for more,” he wasn’t far off; every election cycle, Norquist’s Americans for Tax Reform forces candidates to sign a “no new tax” pledge, and holdouts risk being publicly ridiculed for not signing. But now there are indications that at least some Republicans, like Daniels, are awakening from their stupor. As the crippling recession and mounting long-term deficit projections inspire new calls for fiscal austerity, especially from the Tea Party types currently driving the GOP’s agenda, it’s worth asking whether we’re about to witness the biggest change in conservative politics since the rise of Reagan: the beginning of the end of the Tax Zombie Republican.

To get a sense of how such a staggering shift could be possible, let’s rev up our DeLoreans, restart our flux capacitors, and return to the roots of modern-day Republicanism. Among conservatives, Ronald Reagan is remembered as the tax-cutter in chief: the supply-side hero whose Economic Recovery Tax Act of 1981 slashed the top marginal tax rate by more than half. But the truth is that after his first year in office, Reagan was actually willing (if not always happy) to compensate for gaps in the government’s revenue stream by raising rates. In 1982, for example, he agreed to restore a third of the previous year’s massive cut. It was the largest tax increase in U.S. history. The Gipper also raised taxes in 1983. And 1984. And 1986. The party sainted him for his efforts.

That permissiveness ended with Reagan’s successor, George H.W. Bush. While campaigning for president in 1988, Bush made a solemn promise: “no new taxes.” But in 1991 he accepted a small tax hike as part of a major deficit-reduction package. Conservatives—who’d become militantly, monolithically antitax in the Gipper’s wake—were enraged. Never mind that the package paved the way for the booming economy and balanced budgets of the 1990s, much as Reagan’s apostasies coexisted peacefully with the steady growth of the previous decade. Bush lost the right, and then reelection. Ever since, only the rarest of Republicans has dared to deviate from GOP dogma on taxes—even as the party’s absolutism (see: Bush, George W.) spawned record deficits and squandered its reputation for fiscal responsibility.
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2 comments:

Anonymous said...

Regarding tax increases, if you mean in 2011, then that is madness. The recovery (?) is so weak that tax increases would flunk Econ 101. If you mean after the recovery is real and strong, then OK. If you are saying that Republicans will NEVER accept higher taxes, that is a straw man argument as evidenced by your own Reagan example. Reagan didn't agree to more taxes until we had sufficiently recovered from the mess that Carter left. Statmann

Anam Cara said...

The Republicans won't need to bring in new taxes if elected. At least I hope they don't dream up any NEW taxes for us!

Don't worry about taxes, we'll be getting them in spades! They just aren't new ones, but old ones that were on vacation.

1 January 2011 the tax cuts enacted in 2001 and 2003 by Congress for investors, small business owners and families expire.

Income taxes will go up. The top rate goes from 35 to 39.6% (2/3 of small businesses pay this rate) The lowest goes from 10 to 15%.

Itemized deductions and personal exemptions are phased out which is the same effect as raising the tax rate.

The marriage penalty returns. The child credit is cut in half. Dependent care tax credit curs.

The Death Tax returns. After 1 January it will be 55% for an estate over $1 million. (You may think you don't have much, but if you own a home - or a business that might not be great but has equipment, stock, cash, etc. your kids will have to come up with 55% of that IN CASH to pay the tax. Do they have $275,000 sitting around for that?)

Think of farmers - they might not make much, but the land they farm is VALUABLE. Their heirs will likely have to sell to pay the Death Tax and there goes the family farm!

Capital gains tax goes from 15 to 20%. Dividend tax goes from 15 to 39.6% (they'll go up again in 2013)

If you have a health savings account or something like that you won't be able to use it for non-prescription, over the counter medicine anymore.

If you have an FSA (Flexible Spending Account) and a special needs child, you can't use that to pay for special education anymore.

Last year 4 million families paid the AMT. Next year there will be 28.5 million families paying it.

Small businesses can usually expense instead of depreciate equipment up to $250,000. No more! Only up to $25,000!

The "research and experimentational tax credit" will be gone which will cost jobs.

Coverdall Education Savings Accounts cut. Employer provided educational assistance curtailed. Deduction for tuition and fees gone. Student loan interest deduction disallowed.

No more charitable contributions from an IRA (which counted toward annual "required minimum distribution")

The value of any health insurance you may get from an employer will be considered income and show up on your W2 so you'll be paying taxes on money you never see. And that may put you in a higher tax bracket!

But it'll all be okay. We don't need any expendable income to grow this country back. And if you can't do proper maintenance on the house, it will bring the value down so maybe your kids won't have to pay the Death Tax on your estate. You never wanted to go on a vacation again, did you? As long as you have enough money for food and gas to get to work, it'll be fine......