Economist Mom has an excellent head-banging-against-the-wall account of the insane tax cut debate unfolding in Washington today:
The fiscal policymaking in this town seems totally schizophrenic right now. What a juxtaposition to have President Obama’s deficit-reduction commission release its final report while the Administration “negotiates” with Congress on whether all of the Bush tax cuts, or just most of them, should be permanently extended (and deficit financed). The media has been reporting that whether the bulk of the Bush tax cuts will be extended or not is not the issue–it is whether the upper-bracket ones benefitting only the rich will be included as well, and what constitutes “rich.” (That floor may be moving up all the way to $1 million.)
Let’s remember that the permanent extension of “just” the “middle-class” Bush tax cuts, as President Obama has proposed, would add about $2.2 trillion to the debt over the next ten years–without interest costs and without the associated extension of Alternative Minimum Tax relief. Such extension would preserve the full value of Bush tax cuts for 97-98 percent of households while continuing to give the largest dollar value of tax cuts to those above the $250,000 threshold.
In other words, there’s no debate in Washington about whether rich people should get a permanent tax cut. Nor is there any debate in Washington about whether rich people’s tax cut should be financed by long-term borrowing. Nor is there any debate about whether rich people should get a bigger tax cut than middle class people. But we “can’t afford” unemployment insurance, we “can’t afford” to pay bank regulators competitive salaries.
We have a bipartisan consensus that the short-term deficit should be made smaller and the long-term deficit should be made bigger even when all the economic logic points in the opposite direction.