The Optimal Tax Plan Is Also the Least Likely Tax Plan

For indispensable reporting on the coronavirus crisis, the election, and more, subscribe to the Mother Jones Daily newsletter.

What would be the best thing to do with the Bush tax cuts? Letting them expire on December 31 is a bad idea because the economy is still in fragile shape and a big tax increase would probably send the U.S. back into recession. Extending them permanently is a bad idea because we need to raise more revenue in the future and reduce the medium-term deficit. Letting only the high-end tax cuts expire is OK, but it’s not optimal either. It doesn’t raise enough money in the long term and it feeds the fiction that middle-class taxes will never have to go up.

The best option is to let everything expire, and then pass a new tax cut that phases out over time. The new tax cut might be a reduction in rates equal to the Bush tax cuts, or it might be some other set of reductions. It doesn’t matter very much. What does matter is that one-quarter of the cuts should expire in 2014, another quarter in 2015, another in 2016, and another in 2017. This would have a gradual effect on the economy, it would require no further congressional action, it would improve our medium-term deficit problem, it would take effect primarily while the economy is recovering, and it would do no more than eventually return us to the tax levels of the Clinton era. There are more complicated approaches you could think of—tagging the expiration dates to economic benchmarks, for example—but in this case, simpler is better. Just phase out the cut over four years and be done with it. That’s easy for people to plan for.

So why won’t this happen? Because there’s no constituency for it. Republicans won’t get behind it because they want permanent tax cuts. Obama won’t get behind it because it’s effectively a tax increase on the middle class, something he’s promised to oppose. Independents might get behind it, but their political influence is approximately zero.

So that’s the situation we’re in. The best solution is probably the least likely to be enacted. Welcome to Washington.

DEMOCRACY DOES NOT EXIST...

without free and fair elections, a vigorous free press, and engaged citizens to reclaim power from those who abuse it.

In this election year unlike any other—against a backdrop of a pandemic, an economic crisis, racial reckoning, and so much daily bluster—Mother Jones' journalism is driven by one simple question: Will America move closer to, or further from, justice and equity in the years to come?

If you're able to, please join us in this mission with a donation today. Our reporting right now is focused on voting rights and election security, corruption, disinformation, racial and gender equity, and the climate crisis. We can’t do it without the support of readers like you, and we need to give it everything we've got between now and November. Thank you.

DEMOCRACY DOES NOT EXIST...

without free and fair elections, a vigorous free press, and engaged citizens to reclaim power from those who abuse it.

In this election year unlike any other—against a backdrop of a pandemic, an economic crisis, racial reckoning, and so much daily bluster—Mother Jones' journalism is driven by one simple question: Will America move closer to, or further from, justice and equity in the years to come?

If you're able to, please join us in this mission with a donation today. Our reporting right now is focused on voting rights and election security, corruption, disinformation, racial and gender equity, and the climate crisis. We can’t do it without the support of readers like you, and we need to give it everything we've got between now and November. Thank you.

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate