Tuesday, September 14, 2010

A diabolical thought

One proven way to help an economy in recession, in my view, is to cut everyone's taxes. Worked for Reagan, worked for Bush. We haven't done that in this recession, mostly because we still have the Bush tax cuts in place, with the result that nearly 50% of workers no longer pay income taxes anyway.

There's a big to-do going on about extending the Bush tax cuts. Politicians seem to think that extending those tax cuts for the middle class will have the same effect as a new tax cut. I don't think so. If my taxes fail to go up, but only stay the same compared to my baseline, I'm not going to feel any richer.

How can we solve this problem? By letting all the tax cuts expire, just as we let the estate tax expire, and let everyone feel some pain in January. Then reenact the Bush tax cuts, say in March or so, prospectively only. That way we get three months of "enhanced revenue" (another term from the Reagan years, I think) followed by genuine relief when taxes go back down.

Could it happen? "The beatings will continue until morale improves."

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