Con­se­quences of bud­get grid­lock

Bush tax-cut ex­pi­ra­tion will hurt Amer­i­cans’ pock­et­books

The Washington Times Daily - - Opinion - By Jef­frey H. Birn­baum

Let’s take a break from guess­ing who the Re­pub­li­can pres­i­den­tial nom­i­nee will be (it’ll be Mitt Rom­ney) and con­sider some­thing that is know­able and mea­sur­ably con­se­quen­tial. At the end of 2012, Ge­orge W. Bush-era tax rates and a pay­roll-tax hol­i­day are sched­uled to ex­pire. This means that ev­ery Amer­i­can with a pay­check will face a tax in­crease, po­ten­tially a very siz­able one. In tax terms, that’s catas­trophic: Taxageddon. Tril­lions of dol­lars of fed­eral rev­enue are at stake, in fact, the largest tax in­crease in his­tory. If Congress does noth­ing and al­lows the rates to rise, bud­get deficits will shrink by roughly $5 tril­lion over the next decade — and tax­pay­ers’ wal­lets will get lighter by the same amount.

But if Congress acts to ex­tend the laws, stop­ping the rate in­creases, tax­pay­ers will feel no new pain. The fed­eral gov­ern­ment, how­ever, will be forced to shoul­der an­nual deficits hun­dreds of bil­lions of dol­lars larger than the tril­lion-dol­lar-a-year short­falls it’s al­ready ex­pected to suf­fer.

Take the pay­roll-tax hol­i­day. If it dis­ap­pears, 160 mil­lion work­ers will lose $80 a month on av­er­age. If the Bush tax rates end, the two top in­come tax rates will in­crease from 33 per­cent and 35 per­cent to 36 per­cent and 39.6 per­cent. The rate on cap­i­tal gains, the profit from the sale of prop­erty or se­cu­ri­ties, will rise to 20 per­cent from 15 per­cent and the rate on div­i­dends will more than dou­ble from 15 per­cent to 36 per­cent or 39.6 per­cent, de­pend­ing on a tax­payer’s bracket.

That’s not all. Fed­eral spend­ing also is about to be cur­tailed sharply.

The com­pro­mise reached to in­crease the U.S. bor­row­ing limit last Au­gust man­dated $1.2 tril­lion in spend­ing cuts over 10 years — half from the Pen­tagon — that will go into ef­fect au­to­mat­i­cally next year.

Cou­pled with Taxageddon, this slash in out­lays will usher in the big­gest change in the size and shape of the fed­eral gov­ern­ment since World War II.

The ques­tion is: How much of this will be al­lowed to hap­pen? That’s what this year’s elec­tions are about. Repub­li­cans claim to hate debt and deficits. But they are cam­paign­ing against tax in­creases that would ease the prob­lem they say they care about so much. Many also say they’re de­ter­mined to block the slow­down in mil­i­tary spend­ing that would have the same im­pact.

Democrats, iron­i­cally, have a greater claim to a deficit so­lu­tion than the GOP be­cause they fa­vor tax in­creases (by end­ing the Bush rates) that would stanch red ink by the bar­rel­full. They also like the Pen­tagon re­duc­tions. But they aren’t ea­ger to save much more and, in fact, would like many pro­grams to bal­loon. So who gets to pay? If Pres­i­dent Obama is re-elected, he no doubt will stop any ef­fort ei­ther to keep the Bush rates or to fore­stall the mil­i­tary re­duc­tions. In­deed, that’s the most likely out­come al­most no mat­ter who’s the next pres­i­dent.

In Washington, it’s al­ways eas­ier to stop some­thing from hap­pen­ing than to make it hap­pen. Congress would have to take spe­cial ac­tion — and the pres­i­dent would have to con­cur — to avert the spend­ing cuts and ex­tend the Bush rates and the pay­roll-tax hol­i­day.

But if Repub­li­cans nar­rowly win con­trol of the Se­nate and their can­di­date takes the White House — both of which are pos­si­ble — a bat­tle royal is likely to en­sue. The is­sue on the ta­ble will be gov­ern­ment re­form, which likely will in­clude trans­form­ing gov­ern­ment spend­ing as we know it and tack­ling the daunt­ing task of tax re­form — low­er­ing tax rates and elim­i­nat­ing tax breaks. All of which will be both harder and more es­sen­tial be­cause of the con­flu­ence of Taxageddon and the au­to­matic spend­ing cuts.

Amer­i­cans have grown ac­cus­tomed to — and in an odd way have come to ap­pre­ci­ate — grid­lock in Washington. Af­ter all, the last time the stale­mate was bro­ken in a ma­jor way, Oba­macare was en­acted, which to this day is dis­liked by a ma­jor­ity of vot­ers, ac­cord­ing to the polls.

But at the turn of the year, in­ac­tion in Washington will be felt per­son­ally by hun­dreds of mil­lions of peo­ple in a way that they have not ex­pe­ri­enced for decades. In­ac­tiv­ity is, there­fore, a choice with real mean­ing this elec­tion year.

De­cid­ing to do noth­ing will help Amer­ica’s fis­cal sound­ness and cause pain to mil­lions of Amer­i­cans. The elec­tions in Novem­ber will de­cide how that po­lit­i­cal equa­tion will get bal­anced.

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