As the economy continues to stagnate, President Barack Obama and Congress still dither over extending income tax cuts first enacted under President George W. Bush. Obama wants to continue the reduced rates for taxpayers earning less than $250,000 a year, but let them expire for those making that amount or more, meaning the top tax rate would rise to 39.6 percent from the current 35 percent.
Republicans in Congress, where they form a majority in the House but not the Senate, are insisting on extending the cuts for everybody, or making the cuts permanent. That also is the position of Mitt Romney, the presumptive GOP nominee for president.
Obama obviously is making this class-warfare campaign of envy a major plank in his re-election bid. The tax-cut extensions might not be resolved until after the November election.
It also shows how mistaken President Bush and other Republicans were a decade ago to pass temporary tax cuts. The original expiration date, at the end of 2010, was extended until the end of 2012. They should have been made permanent. As the great 18th century economist Adam Smith pointed out, uncertainty on taxes can be as bad as tax rates that are too high.
Yet the news isn’t all bad. “The message here is that at least Obama is willing to extend the tax cuts for the middle class. That’s a positive,” Esmael Adibi told us; he’s the director of the A. Gary Anderson Center for Economic Research at Chapman University. “Having no cuts at all would be a disaster.”
He said the best option would be to make the tax cuts permanent. Next-best would be to pass another extension for all taxpayers, followed by the Obama option of extending tax cuts for some people. Worst of all would be no extension, meaning a full whammy of tax increases on everyone.
“Tax cuts mean leaving more money to people, which would help small-business investment, jobs creation, spending and the overall economy,” Adibi observed. He said it’s possible the president could get the tax-cut extension for the middle class passed before the election, putting off a decision on tax cuts for incomes at or above $250,000 until after Election Day.
Another problem with raising taxes on “the rich” is that $250,000 a year doesn’t go nearly as far in California as in many other states with lower taxes and costs of living. Somewhat ironically, the Golden State is a shoo-in for Obama, as in 2008.
“The income tax should be indexed for cost of living across the country,” Adibi said. “But that’s not going to happen. It’s disappointing. There’s no way we should be paying the same rate as Arkansas.”
We checked some home costs on Zillow.com. In Irvine, the median price for a 2,000-square-foot home is about $630,000. Mortgage: around $2,900 a month. In Little Rock, Ark., the median price for a similar home is about $120,000. Mortgage: around $460 a month. But Bill Clinton’s native state doesn’t enjoy those cool ocean breezes.
Meanwhile, the economy remains stalled. One factor is uncertainty about what income tax rates will be. Others are the uncertainty about taxes imposed by the Affordable Care Act, which could disappear if Republicans win the White House and Senate and dismantle Obamacare. The national debt, now $15.9 trillion, keeps rising by more than $1 trillion a year, with little relief in sight even if Romney wins. And, in California, Gov. Jerry Brown’s $8.5 billion tax increase is at the top of the ballot.
No wonder the latest numbers showed the May national unemployment rate stuck at a dismal 8.2 percent, the same as in April. Investing, hiring, spending and other fiscal decisions all await the voters’ decisions.
