Make the Bush Tax Cuts Permanent

For the first time in a generation, the American people received a significant tax cut when Congress passed the Economic Growth and Tax Relief Act of 2001. The tax cut reduces marginal tax rates at every level over a period of years and is intended to eliminate the Death Tax. The tax cut, in large part, reflects the proposal President Bush campaigned on, except in one critical respect — the tax cut is not permanent. And fixing that problem is the single greatest fiscal step Congress could take to boost economic growth.

The Bush tax cut proposal contained many very positives elements. First, it rejected the class warfare argument that only a chosen few deserved tax cuts. The Bush proposal focused on reducing marginal income tax rates at every level. Rather than the poll-driven approach of “targeted tax cuts,” where individuals receive tax benefits only if they behave the way Washington wants them to, President Bush argued for an across-the-board reduction in marginal tax rates on individual income. This approach resulted in a tax cut plan that had as its core purpose, broad-based economic growth.

The President also fought hard to eliminate the Death Tax. The simple fact is; the Death Tax needs to be buried. It is anti-job, anti-family, and anti-American. It stifles entrepreneurship and is the leading cause of dissolution for most small businesses. The Death Tax reduced the stock of capital in the economy by 3.2 percent in the past century. And a 1998 study by the Joint Economic Committee of the United States Congress concluded that it is not only ineffective in reducing inequality, it may actually increase the inequality of consumption.

In the end, President Bush made some political compromises to get the bulk of his tax cut through the Congress. The major concessions involved delaying the phase-in of the rate reductions and the elimination of the Death Tax, and most significantly allowing all of the tax cuts to expire in the year 2010. The President decided that he could not get any tax cuts passed at all without making concessions, so he took what he could get now and has said he plans to come back for more at a later date.

Now is the time to go back for more. Senate Majority Tom Daschle (D-SD) may think that tax cuts cause recessions, but President Bush and most members of Congress know that marginal tax rate cuts expand growth. With America’s economy in recession, now is the right time to provide a pro-investment jolt to the economy by making tax cuts permanent in law.

To understand why leaving the tax cut expiration date in place makes little economic sense, one just needs to understand why Congress decided not to make the Bush tax cut permanent. It was a combination of needing the votes and an arcane, misguided budget law enacted as part of a tax increase in 1990. At that time, Congress compounded the mistake of raising taxes by adding a little noticed amendment to the law governing the federal budget. The amendment extended to tax cut provisions a law that said Congress could not pass any legislation that had an adverse impact on the budget deficit beyond the years covered by the law under normal budget reconciliation rules. The practical result of that provision is that any tax cut that lasts longer than ten years needs sixty votes in the Senate, rather than the simple majority of 51 votes.

President Bush didn’t have sixty votes for his tax cut, so it had to expire in ten years or it would not pass. Does this make any actual economic sense? Of course not, and it has made it virtually impossible for individuals to conduct estate planning based on the new law.

The great benefit of lowering marginal rates is that it gives individuals greater incentives to save and invest. Without providing the certainty of knowing that marginal rates will remain low, Congress has dampened the economic impact of the tax cuts they themselves have passed.

President Bush should urge Congress to fix this mistake. Will it be difficult? Yes, in fact it will be very tough to get Congress to fix a law that makes it hard to cut taxes. Liberals like the little, hidden technical rules that keep the revenues flowing to fund bigger and bigger government. But if exposed, how can they defend these silly laws?

Let those that want big government defend why they can’t allow a permanent tax cut. We should stand firm for lower taxes, less government and more freedom. We must remain focused on why permanently lower marginal rates promote economic growth. Let’s continue to the drumbeat to eliminate the Death Tax once and for all.

In other words, let’s stand for big, important principles rooted in the ideas of the Founding Fathers. If the other side wants to attempt to hide behind arcane technical rules of federal budget law, that’s their choice, but those of us who love freedom shouldn’t be diverted from the central debate. Is government too big or too small? Are taxes too high or too low?

And, we shouldn’t leave the burden on President Bush to carry this argument. Citizens must get involved as well. Senators, in particular, need to hear from their constituents. An election year is never a bad time to send the message that we want permanent tax cuts.