Johnston: Obama Should Wait For GOP To Cave On Tax Cuts

President Obama should stand his ground on tax cuts and wait for the GOP to cave, David Cay Johnston writes (hat tip to Morning Money).

Johnston, the well-known tax journalist, presents the debate over the Bush tax cuts, which include breaks for the middle class and the wealthy that are set to expire by year's end, as a game of chicken. As long as the president can show "courage" and "do the job [he] asked people to elect [him] to do," he can force the Republicans to keep the middle class cuts while allowing the cuts for the wealthy to expire, Johnston writes.

Since the GOP will never make good on their threat to end middle class tax cuts, Johnston says, the president does not have to hand them the top-earner extensions they crave. He "should call their bluff." Here's Johnston:

"I don't think the Republicans are so stupid that they would let all the Bush tax cuts expire if they cannot continue tax cuts for billionaires and the affluent on all of their income. ... This is a fight that Obama can win, and win handily, if he has the backbone to stand up for the vast majority and sound tax policies, and to take on the antitax billionaires who are piling up huge gains while unemployment, debt, and fear stalk our land."

Republicans, who on Nov. 2 won a majority in the House and made gains in the Senate, still cannot push through legislation that Obama opposes, Johnston notes. They will have to capitulate to the president's demands, and if they don't, "The economic news would be so awful that a president half as eloquent as Obama could easily focus attention on the Republican all-or-nothing tax policies as the cause of this universal pain," Johnston says.

The argument for extending tax breaks for the rich, championed by GOP leaders Rep. John Boehner (R-Ohio) and Sen. Mitch McConnell (R-Ky.), has centered on the idea that the top-earners create jobs, and pinching their income would wound the larger economy. McConnell has said a tax hike would affect "half of all small business income in this country."

But the GOP definition of "small business" is somewhat unconventional. In certain cases, companies are categorized as small businesses not based on revenue, but based on a company's number of owners.

As billionaire investor Warren Buffett argued over the weekend on ABC, the "trickle-down" theory, that giving money to the rich will also enrich the lower classes, hasn't been borne out in practice, HuffPost's Amanda Terkel reported. Buffett, who this year is ranked second on Forbes' list of wealthiest Americans, with a fortune of about $45 billion, repeated an argument he's been making for a long time.

"I think that people at the high end, people like myself, should be paying a lot more in taxes," he said on Sunday.

If business-owners do get a boost from tax breaks, there's no guarantee they'll use that money to create jobs. Companies, locked in a defensive crouch, are currently sitting on about $1.8 trillion in cash and other liquid assets, according to data from the Fed. The unemployment rate, meanwhile, is stuck at 9.6 percent.

Johnston spoke about the tax cut situation in a recent spot on Yahoo's Tech Ticker:

WATCH the interview below:

Comments

[gingerred]

06:22 PM on 11/30/2010

My answer to the Tax problem. (1) Extend All cuts for two years.(2) Third year raise taxes on rich to half the mount of the cut. (3) Fourth year raise taxes on middle class !/4 the amount.
raise taxes on rich half the remaining amount. (4) Year 5 raise taxes on rich to full amount raise taxes on middle class !/4 of remaining amount.”

[Chip W]

07:59 AM on 11/24/2010

According to PBS Newshour a couple of weeks ago:
94% of small businesses file individual tax forms.
97% of these would be unaffected by letting the tax cuts expire.
So what's the real game the Republicans are playing? Are they unabashedly striving for a plutocracy?

[ThirdSection]

02:35 AM on 11/24/2010

"President Obama should stand his ground on tax cuts and wait for the GOP to cave."

Did you hear that Mr. President? They're the ones who are supposed to cave, not you. You're the president and the buck stops with you!

[rory talbot]

12:03 AM on 11/24/2010

Obama is Kenyian for "Cave In"

[ObjectiveRealist]

11:10 PM on 11/23/2010

Re-posting, a comment by a friend that has been deleted by an abusive moderator:

realpolitic Commented 2 days ago
"The Republicans are lying as usual. They are lying about what
constitutes a small business. They are lying about tax cuts for
the rich creating jobs. We saw during the Bush administration
these cuts created few or next to no jobs. After all. Clinton
in his two terms created about 23 million jobs while Bush 3
million. The tax cuts did little to help the economy,
except create a big deficit hole for us."

[keyma]

10:18 AM on 11/30/2010

Why would a moderator delete this? This is so true!

[spiralskydancer]

09:57 PM on 11/23/2010

greetings....if Obama wanted to know what you think he SHOULD do, he would ask you....he doesn't care and you are wasting your time with all this shoulding......nobody likes a shoulder....and besides Should Never Happens....._hit Happens....

[okiedemocrat]

08:33 PM on 11/23/2010

Gosh, I thought Obama's job was to lead...give us hope...shame those who are against him. Where's the fire in the belly?

[keyma]

10:23 AM on 11/30/2010

Obama has lost his fire. And he may lose the next election unless he can stand up for his beliefs and quit caving. Polls have shown the majority of the population does not want to extend the tax cuts for the rich. To quote the Repubs over the last two years "he's not listening to the people".

[lvdragonlady]

08:32 PM on 11/23/2010

He should back them into a corner and wait for them to implode.

[KOSMOCITIZEN]

07:32 PM on 11/23/2010

i think his intentions are to let all tax cuts expire , that way he will have some money to subsidy
some of the provisions in the health care reform.

[JISantiago]

05:05 PM on 11/23/2010

No extension of Bush tax cuts for the rich. End of story.

To those who still champion the tricke-down theory, read today's headline story: Corporate giants reaping record profits yet no new jobs created.

They can also do well by listening to Warren Buffet: Tricke-down theory has failed!

[ObjectiveRealist]

11:19 PM on 11/23/2010

You know, even that old free-marketeer (aka, Mickey Mouse economics) Alan Greenspan admitted that the historical evidence showing any correlation of lower taxes (not specifically on the rich) to increased growth also shows greater instability. Higher taxes don't cause contraction or stagnation, those are periodic results of the instability associated with _lower_ taxes.

Higher taxes cause slow, steady growth, and we all know who wins the race. :-)

[JISantiago]

04:11 AM on 11/24/2010

I couldn't agree more. Fanned.

[Philclock]

05:03 PM on 11/23/2010

No, he should simply resign and do what he does best...writing and lecturing about himself, get out of the way so the rest of us can get back to work.

What we need is a real private citizen that's run his or her own company as President, to put solid business principles to work in this country.

[ciceronow]

01:43 PM on 11/23/2010

I sincerely hope what I am reading about Obama kowtowing to the corporate interests is not true. He needs to hold his ground on the no tax cuts for the wealthy, only for the middle class. Once again, if the corporations are sitting on all these reserves and they won't employ people, the government should take their resources through higher taxes and put people to work through government jobs. Higher a third more teachers or pay the ones we have now more money. Then the money will trickle up in demand for goods and services and the corporations will have to rehire.

Obama is going to lose the people who elected him if he starts to cave to the corporate lobby. Just like the tea party is splitting the republicans, Obama will lose the middle class and the left. Maybe Howard dean and Ralph Nader oughta challenge for the presidency in 12, that would send a message to Obama. When that african-American woman who challenged him several months ago just lost her job, you know things are going in the wrong direction. I know Obama inherited a mess from the republicans but rather than playing nice he needs to keep reminding the people how we got here. If the corps won't hire people, the govt should.

[MrUniteUs]

11:55 AM on 11/23/2010

Republicans are foolish to want to extend the job killing deficit generating Bush tax cuts,
beyond the agreed upon expiration date. They want to pass on the cost of wars to future generations.
.
They're also foolish to block the START treaty.

Tell everybody.

Yes WE can.

[traumabob]

10:02 AM on 11/23/2010

The quetion should be, "What the heck has Obama been waiting FOR these last two years? DO SOMETHING!

[quorn]

07:30 AM on 11/23/2010

If any action is taken, it will mean " no change to the present brackets " NOT a tax cut.

If we wish to avoid the problems if the Irish economy we should allow these brackets to go back to the previous rates.

My vote is to allow all rates to lapse. Get rid of the mortgage exclusion, and tax political and church donations!