Another Day Gone, and Tax Uncertainty Grows

By November 19, 2010Taxation

Surveying the tax policy debate today, we ascertain that the only thing certain is uncertainty.
Washington Post, “Obama, Democrats fail to agree on plan for expiring tax cuts“:

President Obama and congressional Democrats failed to agree on a strategy Thursday for extending an array of expiring tax breaks, with the party badly divided over whether to temporarily extend the cuts for all taxpayers or stick with their pledge to protect only the middle class

Radio talk show host Hugh Hewitt has been urging Congressional Republicans to demand a permanent extension of tax cuts, and he discussed tax policy with Gov. Mitch Daniels of Indiana, in an interview at the Republican Governors Association meeting in San Diego Thursday.

HH: Right now, this tax hike is looming at us. It’s coming at us like a tidal wave. And Paul Ryan said on Hannity the other night, and we love Paul Ryan, but he said we’ll take a two or three year extension of the existing tax rates. What do you think of that policy? What ought to be the policy of the Republicans going into this negotiation?

MD: Those are two different questions. I mean, first of all, I trust Paul Ryan. He’s one of the best assets the country’s got now. And he and I think alike about a lot of things. I mean, the right policy, of course, would be certainty, permanence, predictability. This is always the case in tax policy. A lot of businesses say they can live with a sub-optimal tax system as long as they know what the rules will be. You know, in Indiana, we passed the biggest tax cut in state history, and we cut property taxes, which are now the lowest in America. But maybe the more important thing that we did was we, and we just made this part of our constitution two weeks ago, we put those caps, there’s a cap now at 1% on the value of your house, 2% on your farm or rental property, 3% your business, permanently. It can be lower than that, but it can never be above it. And a lot of businesses say that it’s the certainty of that that’s as important to them as the fact that the rates are low. And the same would apply, I think, to federal policy.

But look, if Paul Ryan and other folks down there who know that think that let’s get the best deal we can now and fight another day, I’d defer to their tactical judgment.

Sen. Orrin Hatch (R-UT) and Sen. Chuck Grassley (R-IA) held a colloquy on the Senate floor on Thursday. From Sen. Hatch’s release, “Hatch Outlines Cost of Looming Tax Increase on Utah Families, Businesses.”

Hatch highlighted a study by the Heritage Center for Data Analysis that concludes that the President’s tax plan to allow the tax relief provisions to expire for the top two income brackets would have very serious consequences for millions earning far less than those targeted. The report found that the President’s plan would:

• Reduce economic growth for at least the next ten years;
• Reduce our gross domestic product by $1.1 trillion over a ten-year period; and
• Reduce jobs by 238,000 next year, 876,000 lost in 2016, and an average of 693,000 jobs each year over a ten-year period.

“Business investment, personal savings, disposable income, and consumer spending would all be lower if these taxes go up. This is exactly the wrong direction we need as the U.S. struggles to recover from this nasty recession,” concluded Hatch. “Tragically, and especially in this time of economic stress and high unemployment, the real cost of taxation is paid by a group of unintended victims. These are the men and women, and their families, who do not get the chance to have a job or a higher paying job because the tax destroys the economic growth that might have provided such an opportunity.”

The Hatch-Grassley discussion starts on page S8020 of The Congressional Record.

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