Tuesday, April 14, 2009

Why Aren't We Passing Future Tax Increases?

Passing fiscal items for future years seems to be a fairly ordinary thing to do in budgets. The Bush tax cuts were set to expire in the future, and some of the stimulus spending we've passed goes on in the future. So I would've hoped that the Obama administration would use the present moment to pass higher taxes on people who look especially bad at the present moment. If you wanted to set it up so capital gains were taxed equally to income in 2011, or pass some kind of securities transaction tax, or set up a millionaire's tax bracket, this would be the time to push the legislation.

So why aren't we seeing it? Usual menu of explanations: (Obama being chicken / Obama being politically realistic / It's bad policy for some reason I haven't thought of.)

4 comments:

Anonymous said...

Bush tax cuts expired due to the way they were passed (budget reconciliation).

Neil Sinhababu said...

Right, good point

drip said...

It's true that the budget reconciliation required the sunset, but the political calculation was that no one would vote against a temporary tax cut or be able to let them expire (a la AMT). You could pass tax increases the same way and they wouldn't take effect until later. I don't think Obama will resort to such transparent trickery.

Rousseau said...

I would say it's just against conventional wisdom here, and DC just really is a very inertia-based town. Also, it's pretty hard to raise taxes, so let's say it's 50% as hard to raise taxes on future people.

Which is sad, because it's a really good idea! A credible promise to increase taxes tomorrow is actually an economic stimulus for today (buy when it's cheaper, after all). In the short term we can do this by saying we'll raise taxes in 2 years when the recession is over. In the longer term, I would love a system that automatically raises tax rates and reduces spending rates in the boom years, while doing the opposite in recessions.