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The President Should Extend All Tax Cuts for One Year

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Dr. Drew Westen wrote a piece here at The Huffington Post that needs to be read by anyone interested in tax policy, particularly Democrats who are concerned about President Obama's re-election chances. Westen's article states that the proposal to extend the Bush tax cuts for one year for families making under $250,000 a year is "bad policy, bad politics, and bad messaging".

This isn't because Westen is opposed to tax cuts for the middle class or because he wants to make these tax cuts permanent for everyone. Westen argues that this is bad policy because while $250,000 per year isn't a small income, it is far below the income level of the top percentiles (namely the top 0.1 percent) who have been able to insulate themselves from much of the financial heartache of the past decade. He states that this is bad politics because most people in the $250,000 income range are wage-earners who reside in suburbs or exurbs that President Obama needs to carry in order to win re-election. Westen says this is bad messaging because setting the cutoff at $250,000 makes the policy debate dwell on an arbitrary number rather than larger principles.

The Westen piece is a great article that should be read in its entirety. I want to focus on the messaging point and add a few thoughts, which Westen may or may not agree with. Setting the cutoff point for tax cuts at $250,000 allows Mitt Romney and the Republicans to demagogue the tax issue by encouraging them to raise arguments about the fairness of raising taxes on two-income professional households when their main goal is to preserve the financial advantages of the very wealthy. To be fair, GOP disingenuousness on issues of economic policy isn't anything new and any Democratic administration needs to face it. But setting the tax cutoff point at $250,000 hands the GOP an avoidable issue and gives them an exit.

I suggest that President Obama should have acted (and perhaps can still act) more boldly by proposing to extend the Bush tax cuts for everyone for one more year. That way Romney and the Republicans in Congress would have to either accept his proposal or explain why tax cuts should not be extended for one year, without having the cover of the issue of the $250,000 cutoff point. It would have put the Republicans in a bind and would have resonated well with the general public.

Such a proposal may not satisfy those who want to use tax policy to address broader issues of income inequality, but such people aren't a majority of voters, much less a majority of Democrats. Even if the President wanted to cater to them, waiting a year to do so wouldn't make a huge difference if larger societal changes (whether with regard to deficit concerns or economic inequality) are the goal. Also, raising taxes when the economy is weak isn't a good idea from a Keynesian perspective, so waiting an extra year to do so is good from a policy perspective.

I'd agree with Westen that we should be talking about tax increases on the very wealthy and the cutoff points for that should be in the $1 million or more range rather than the $250,000 range. But there's a time and a place for everything. I suggest that going for that sort of tax increase in an election year with a stagnant economy and when the time-frame for the rest of the tax cut extension is one year would be unwise, though it would be better than what's being proposed now.

The president should have made the Republicans put their money where their mouth is by offering up a tax cut extension for everyone for one year. He might still be able to do that, if the political winds go the right way for him. This could put the tax issue off the table in the short term and this could be handled in a manner that would give the voters a stark choice -- continue the Bush tax cuts forever under Romney or revamp them in a sensible, context-conscious manner under Obama. This would be good policy as well as good politics and messaging.

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