Washington View: Redefining the Bush-era's tax cuts

By Don Brunell, Columbian business commentator

Published:

 
photoDon Brunell recently retired as president of the Association of Washington Business.

Everyone is talking about the "fiscal cliff" deadline looming on Dec. 31, when automatic tax increases and spending cuts take effect unless Congress reaches a compromise. Both political camps are in full campaign mode, blaming the other for the lack of progress.

However, as the nation moves ever closer to the dreaded precipice, something interesting has happened. The long-vilified Bush tax cuts have been rehabilitated.

For more than 10 years, most Democrats lambasted the lower taxes approved during the Bush administration as "tax cuts for the rich." The mantra was repeated constantly and became part of our national lexicon.

Now, those same critics are embracing the Bush tax cuts as they apply to middle-income earners, warning that letting them expire will result in big tax increases for average folks.

Apparently, the critics knew about the benefits for middle-income families but chose not to mention them — until now.

Well, the former-critics-turned-supporters are correct.

According to President Obama's National Economic Council, ending the Bush tax cuts will hike taxes on the average middle-income family by $2,200 annually. When combined with the automatic tax increases set for Jan. 1, the impact will be even greater.

The Tax Foundation says if we go over the fiscal cliff, a family of four in McAllen, Texas with a median income of $36,104 per year will see their taxes increase $2,938 a year, or more than 8 percent. A similar family in Mount Vernon, Wash., earning the median income of $78,569 would see a $3,300 increase.

While the Democrats' disdain for the Bush tax cuts has moderated somewhat, the assaults on "the rich" continue. In August, Obama urged Congress to let the Bush tax cuts expire for high-income earners, saying "we cannot afford $1 trillion worth of tax cuts for every millionaire and billionaire in our society."

There are three problems with that statement.

First, the higher taxes hit individuals with incomes of $200,000 — not millionaires and billionaires. Apparently we have redefined what it means to be rich in America. Interestingly, tax-hungry Britain now defines "rich" as making more than $64,560 a year.

Secondly, the tax hike will affect millions of small businesses whose owners file taxes as individuals. Jay Timmons, president of the National Association of Manufacturers, notes that two-thirds of manufacturers pay taxes as individuals. Timmons warns that the fiscal cliff's draconian spending cuts — falling mostly on defense spending — would hit companies like The Boeing Co. particularly hard and says reaching an agreement on the fiscal cliff is vital to our economic recovery. "If no deal is reached, it will put a damper on growth for years to come," Timmons said.

Third, the money from hiking taxes on people making more than $200,000 a year will run the federal government for only a week or so.

The only way to reduce the deficit is to cut spending. Tax hikes alone won't balance the budget or wipe out the deficit without destroying our economy and killing jobs. Unfortunately, the relentless "tax the rich" campaign has obscured this part of the equation.

Virtually no one in Washington, D.C., wants to talk about spending cuts because it can be political suicide. Every government program has its strident supporters, and any talk of cuts creates a firestorm of protest.

But we must cut government spending, reduce our massive debt and shift capital back to the private sector to innovate, create and solve problems. That is the only way we will re-energize our economy and restore America's financial strength.

Don Brunell is president of the Association of Washington Business, Washington state's chamber of commerce. Visit http://www.awb.org.