Is The Tax Deal Dead?

Today there is an article posted in NetRight Daily entitled “The Tax Deal Dilemma.” In that article, the author Bill Wilson makes the point that this tax deal is really a two edged sword.  It is a very well written article and deserving of a read.  The tax deal on the table as negotiated by President Obama and Congressional Republicans basically will increase the deficit dramatically if passed in violation of everything that the new Congressional Republicans have promised; and, it will create a disastrous double dip recession if it fails.  Both of these scenarios are nightmares in waiting.

The article relies very heavily on an article written by Arthur Laffer on June 6th, 2010 in the Wall Street Journal entitled, “Tax Hikes and the 2011 Economic Collapse”.  This is the same Arthur Laffer that created the famous Laffer curve which ushered in Reagonomics in the early1980’s.  As many of you know, the Laffer curve is a simple diagram that shows that if you raise taxes, you do not necessarily raise government revenues.  For those of you that have never seen it, here is a representation from Wikipedia.

Laffer curve: t* represents the rate of taxation at which maximal revenue is generated. Here the curve is symmetric for simplicity, which is not realistic.

As you all know, Reagonamics and Supply-side economics led to one of the longest peace time expansions in American history.  So, Mr. Laffer must be taken seriously.

I acknowledge all of the comments and opinions in Bill Wilson’s article.  However, I must state for the record that I still support the passage of this compromise legislation.  I would be much happier if the Conservatives would have played more hard ball with the President.  However, even bad legislation is sometimes necessary.  We simply cannot have the tax rates go higher in the new year.

And, by the way, I also think it is time that the Republicans and Conservative stop using the words “tax cuts.”  This is not renewing tax cuts, it is raising taxes.  These tax rates have been in effect since 2002.  We are not renewing any tax cuts.  If Congress does not act, we are raising taxes.  The mainstream liberal media has turned this phraseology on its ear and have done their best to make Conservatives look evil again.  In fact, these tax rates that have been in effect since 2002 are the same tax rates that were passed when Reagan rewrote the tax code in 1986.

However, in the last day, the deal as negotiated appears to have run into trouble.  This morning, the House Democrats in a non-binding vote passed a resolution saying that the tax deal on the table should be voted down.  Our life-long friend Nancy Pelosi was quoted as saying:  

In the Caucus today, House Democrats supported a resolution to reject the Senate Republican tax provisions as currently written. We will continue discussions with the President and our Democratic and Republican colleagues in the days ahead to improve the proposal before it comes to the House floor for a vote.

Democratic priorities remain clear: to provide a tax cut for working families, to create jobs and economic growth, to assist millions of our fellow Americans who have lost their jobs through no fault of their own, and to do this in a fiscally sound way.”

House Democrats share the President’s commitment to providing the middle class with a tax cut to grow the economy and create jobs. The House passed a bill last week to provide tax cuts for all Americans but not a bonus tax cut to millionaires and billionaires. The extra tax cut for the top 3 percent does not create jobs and increases the deficit. Unfortunately, Senate Republicans blocked the bill from being approved by the Senate.

Ms. Pelosi and her left wing nut job friends still don’t get it.  This statement is nothing more than political pandering and positioning.  She, with her private jets and elitist attitude, does not care at all about anyone in this country except herself and her job.  When she passed that proposal to raise taxes on those making more than $250,000 per year last week, she knew it would fail.  That was always the plan and has been reported in this column before.  From the minute when that vote failed in the Senate, they Democrats have been saying that Republicans do not care about the middle class.  All they care about is the rich.

Unfortunately, the rich create jobs and allow the middle class to exist.  Most people making over $250,000 per year except for a few celebrities and athletes, own small businesses.  Small businesses account for most of the employment in the world.  The Democrats care about nothing but creating class warfare and making the middle class believe that the Republicans are against them.  And, this has been the ploy of this entire Lame Duck Congress and the Democratic controlled Congress of the past two years.  They are going to show the American people that the election on November 2, 2010 was wrong and that the middle class is going to pay.

Regardless of the pandering and politicizing of this issue, it should pass as many of Ms. Pelosi’s own party are abandoning her.  There are currently about 50 Democrats in the House that are leaning towards the compromise.  Of course, there are a few of the more liberal Republicans that are leaning the other way.  Based upon this, it is going to be an interesting two week until they all go home for Christmas.

In the meantime, the American populace suffers as they are not aware of what their take home pay will be on January 1, 2011.  Businesses suffer as they are not aware of whether to hire or not hire.  The whole mess keeps getting worse.

And, as Mr. Wilson says at the end of his article, even if this does pass, the deficit must be addressed drastically in the next few months.  This compromise is not revenue neutral and will cost future generations billions of dollars on more interest payments on the debt.  Someone in Congress is going to have to face the tough issues.  Will it be the next Congress?  We know it wasn’t the last.

© 2010 by Frank T. DeMartini.  Permission to copy will be freely granted upon request.

Share This Post

Post Comment