POLITICS
11/09/2010 10:29 am ET Updated May 25, 2011

Kevin Hassett, Prominent Conservative Scholar, Calls For Scrapping Bush Tax Rates

WASHINGTON -- A prominent member of a major conservative think tank has recommended a resolution to the debate over tax cuts that's unlikely to please his colleagues or, for that matter, be embraced by a timid Congress.

Kevin A. Hassett, a senior fellow and the director of economic policy studies at the American Enterprise Institute, produced a little noticed paper earlier in the week arguing that the Bush tax cuts should be allowed to expire in their entirety. In its place, he argues, the administration and Congress should hammer out more deliberate and needed tax reform, on everything from marginal rates and corporate taxes to the overall complexity of the system.

He writes:

The fact is, if we extend the Bush tax cuts, it locks in the status quo. Earth to Washington: The status quo stinks. With the economy still limping forward, much more significant fiscal-policy medicine is in order.

Republicans I spoke with last week are bracing for the latter path and another knock-down, drag-out fight. Obama should surprise them with another direction entirely: declare Bush tax cuts, like the Bush administration itself, over.

Obama should announce that he will work early in 2011 with Republicans, newly empowered in the House, to pass broad tax legislation retroactive to Jan. 1. He could assure markets that key issues such as the expiring dividend and capital-gains taxes will be addressed, and that bipartisan, permanent change would be for the better--the kind of policy that eliminates uncertainty and sets the country on the right path.

[snip]

Rarely has a new conversation been so needed. Isn't it time we stopped fighting over Bush's tax policy? Wouldn't it be refreshing to have a fiscal-policy debate without repeating Bush's name?

Hassett's compromise is the most complex of several ones being proposed as a way to circumvent the inevitable impasse with respect to the expiring Bush tax cuts. Since the election, the Obama White House has signaled a willingness to negotiate off its preferred perch, which would have seen the tax rates for the wealthy revert to pre-Bush levels while keeping them in place for those families making under $250,000 a year. But Republicans in Congress have showed little willingness to talk about raising that level to $500,000 or, for that matter, passing only a temporary extension of the Bush tax cuts for the wealthy.

Hassett predicts a drawn-out fight between the two parties. But in a piece on Tuesday in the New York Times, Jackie Calmes underscored the sense of impending defeat that Democrats are already feeling about the tax cut debate.

Knowing that, it's hard to see why Republicans would choose at the 11th hour to scrap the tax cuts altogether. There is a small group of Senators (Republicans and Democrats) who have pushed for months if not years to get a proper hearing for tax policy reform. But it's doubtful that their proposals or anything remotely broad would be agreed upon in time to replace the current system. Congress, if nothing else, hates risk. And jumping into a major tax policy debate -- as the prospect of rates rising across the board looms -- is a risk.

Still Hassett's piece underscores that there is not necessarily unanimity on the conservative front. Glenn Hubbard, who was the chair of the Council of Economic Advisers under President George W. Bush, has said that the Bush tax cuts should be rolled back in several years. David Stockman, who served as President Ronald Reagan's budget director, likewise, argued on the pages of the Times that the government's price tag requires that tax rates be revised upwards.

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