Raising Future Taxes Yet Again

Well, it looks like they finally did it. Congressional Republicans agreed yesterday on new ways to raise future taxes. They’ve proven quite expert at cutting today’s taxes and paying for them by issuing more government debt – debt that will have to be repaid in the future through higher taxes, of course – so this comes as little surprise to most observers. The Washington Post has details of this latest round of tax cuts deferrals:

GOP Reaches Deal on Tax Cuts [Deferrals]

House and Senate Republican negotiators reached a final agreement yesterday on a five-year, nearly $70 billion tax package that would extend President Bush’s deep cuts to tax rates on dividends and capital gains, while sparing about 15 million middle-income Americans from the alternative minimum tax.

Who gets the tax cuts deferrals? Again, it’s pretty much par for the course that Congressional Republicans have been playing on for the past five years:

Middle-income households would receive an average tax cut of $20 from the agreement, according to the joint Urban Institute-Brookings Institution Tax Policy Center, while 0.02 percent of households with incomes over $1 million would receive average tax cuts of $42,000.

Of course, proponents argue that even if these tax cuts deferrals are extraordinarily unevenly tilted toward the super-rich, they will help to boost the economy, as they have over the past three years. This claim that the tax cuts in dividends and capital gains are responsible for dramatic economic growth is nonsense (for details about why, see previous posts about the international evidence, the strength of the post-tax cut recovery, the budgetary effects of the tax cuts, or the rest of the story about the Bush tax cuts), but that clearly will not stop the White House from repeating that assertion over and over:

Republicans say those tax cuts were crucial to spurring economic growth over the past three years, by persuading more corporations to offer larger dividends and by sparking new business investment.

…”It was as if a light switch has been thrown on,” Treasury Secretary John W. Snow said yesterday. “Rarely has a piece of public policy been so effective, with the effects so evident and immediate.”

Some economists say the timing of those gains was coincidental. “You might credit the cuts with providing a little bit of a jump-start. But I think the main reason the economy has done so well the last couple of years has nothing to do with tax policy, and more to do with the corporate sector starting to spend some of their record profits,” said Ethan Harris, chief U.S. economist of the Lehman Brothers investment bank.

One could come up with many ways to describe Secretary Snow’s “light switch” argument: specious logic; ignorant confusion of correlation with causation; deliberate simple-mindedness; or even the “Donald Duck theory of economic growth“. Whichever label you choose, it is, unfortunately, also just par for the course.