There’s one problem with her scenario: While the Bush tax cuts expire on Dec. 31, so do a lot of tax policies the Democrats support. For example:
●The 10 percent income tax bracket would disappear, so the lowest tax rate would be 15 percent.
●The employee share of the Social Security payroll tax would rise from 4.2 percent to 6.2 percent.
●An estimated 33 million taxpayers — many in high-tax blue states — would be required to pay the alternative minimum tax, up from 4 million who owed it in 2011.
●The child tax credit would be cut in half, from $1,000 today to $500, and would no longer be refundable for most.
●Tax preferences for alternative fuels, community development and other Democratic priorities would go away.
●And the expansions of the earned income tax credit and the dependent care credit would disappear as well.
Letting these tax policies expire would level the playing field for Republicans in tax negotiations next year. Instead of being in a “box,” Republican leaders would have leverage again — something the Democrats want and would have to make concessions to get.
Going over the fiscal cliff would help the GOP in another way: It would save Republicans from having to break their pledge not to raise taxes. If GOP leaders hold the line on taxes this fall, and the Bush tax cuts expire despite their best efforts, it would not harm their reputation as the party of low taxes. But if Republicans vote proactively to raise taxes as part of a “grand bargain,” the GOP brand would be irreparably damaged. Raising taxes and losing a fight to stop automatic tax increases are two different things.
Moreover, if the Bush tax cuts expire, the baseline for future negotiations would be reset. A bipartisan agreement would be within reach that reforms and simplifies the tax code, with a top rate lower than the Clinton rate but higher than the Bush one. Instead of Republicans being under pressure to raise taxes, Obama and the Democrats would be under pressure to reduce the top rate from the Clinton level as part of an eventual deal.
For the GOP, this would be far preferable to the current scenario. Right now, Democrats are demanding that Republicans raise taxes while Republicans are demanding that Democrats agree to cut Social Security and Medicare spending. A grand bargain this fall, then, would mean that Republicans get to raise revenue from their own supporters (small-business job creators) in exchange for cutting spending for their own supporters (seniors). Genius! Much better to wipe the slate clean, and start over with more leverage for fundamental tax reform and structural entitlement reform.
The Obama so-called recovery has been the slowest and weakness recovery since the Great Depression, unemployment is at 7.9 percent, GDP forecast have us down to 1.5 percent, food stamp usage continues to hit record highs with each new report, layoffs and business closures are hitting faster than they can be updated on sites like this one with our daily reports, multiple Obamacare taxes are set to hit in 2013, the stock market is slumping, and post election, economic confidence has declined across all political group.
Perhaps we do have to hit rock bottom before we can finally climb out of this mess.