Cutting Crew: Why The "Tax Cut" Debate Should Not Distract Us From The Cause

The Bush Tax Rate Extension/Unemployment Insurance "deal" is making its way through Congress for a date with the Presidential Pen. The Left continues to howl over their lost redistributionist schemes. But, there are plenty of folks on the Right who are similarly upset. Objections seem to fall into two camps:

1. this is a pork bill, not a tax bill

2. this is Stimulus/TARP, Phase Two

The second complaint, articulated by Charles Krauthammer, relies on believing that the extension of the Bush tax rates amounts to adding hundreds of billions of dollars to the deficit. Sorry, but conceptually this does not work. We don't "borrow" anything to "pay for" tax cuts. The government sets the tax rate, and people pay the tax. That's all. It's the endless spending that causes deficits.

As for the first complaint, I have to agree. There is a lot of pork, which is why this deal is a real nose-holder. But, how out of bounds is this? Republicans trading a win on tax policy for some ethanol credits and unemployment benefits? Wow, that's never happened in the history of the world. Oh, wait, yes it has; like, every freakin' year.

On the big picture, I can't improve on Keith Hennessey:

In 2001 there was a big policy battle over cutting the top income tax rates from the Clinton levels. President Bush and a Republican Congress enacted a law, with support from moderate Democrats, cutting income tax rates for all income taxpayers.

In 2003 President Bush won that battle convincingly by repackaging the top individual rates as small business rates. The debate then shifted to a big partisan policy battle over reducing the double taxation of dividends. The results of the Bush years were lower tax rates for all income taxpayers and lower tax rates on dividends and capital gains.

In 2008-2010 President Obama and huge Democratic majorities tried to undo these policy victories. They tried to raise tax rates on income and capital. They failed, and that failure will extend through President Obama’s first/only term. If someone had told me, the day after Election Day 2008, that tax rates on income and capital would not increase for the next four years, I would have laughed at them. Now it’s about to come true, and Presidents Obama and Clinton are helping make it happen.

And some want to oppose it because it’s not enough?

Exactly right. This idea that we should just let the tax rates go up and then "fix it" in January is crazy. Once they're up, I'd like to see how the GOP, which will only control the House, is able bring them back down on command.

A bigger problem for me is how much drama this horse trading over tax rates has generated. Debates and trade-offs over tax policy are evergreen in government. No matter what the Tea Party or Jim DeMint might say, we are always going to be arguing over the "correct" rate of tax and whether said rate is fair. It is the nature of a constitutional republic. Conservatives are letting themselves grow fractious over tax rates, when there is so much else wrong in the federal government that needs the sort of vigorous attention the tax deal has gotten:

1. we still have two nationalized car companies, and the government is directing the manner in which these companies do business.

2. we still have a nationalized insurance company in AIG. There's a "plan" to get out, but no one seems to be in a hurry to implement it.

3. we are promising to use our position in the IMF to bail out Europe.

4. we still have two nationalized mortgage companies in Freddie Mac and Fannie Mae through which the Democratic Party exercises a de facto national housing policy.

5. We apparently can't keep sensitive diplomatic and military communications off of the Internet

6. we still have Obamacare, which is being implemented as we speak

7. we have a Social Security system hurtling towards insolvency, and whose "trust fund" was raided by progressives years ago.

8. we have a Medicare and Medicaid system that are similarly approaching insolvency.

9. we have a perpetual energy crisis yet we can't explore off our coasts, in our wilderness, or anywhere else you can imagine. We also can't develop nuclear power, the one form of "green" energy that we know will work

10. we have a perpetual immigrations crisis, including the development of a real bi-lingual culture in some parts of the country.

11. We have a debt overhang that amounts to tens of trillions of dollars

12. fill in your favorite here:_____________________.

The fact is, a $56 billion unemployment extension, or a $5 billion ethanol subsidy is nothing compared to these problems. I don't know about you, but I think the Tea Party candidates were voted into office to deal with the rapid and unasked for socialization of the United States over the last two years, not with the sort of tax policy arguments that would happen know matter what the year might be.