Grand bargain for the Bush tax cuts

Opinion: August 12, 2010 at 12:00a.m.

Believe it or not, Congress doesn’t have to get into one of its knockdown, drag-out fights in September, when Majority Leader Harry Reid says the Senate will debate the parts of the 2001 and 2003 Bush tax cuts that the Obama administration doesn’t want to extend past Dec. 31.

Thinking it has a winning issue, Democrats would keep about $2 trillion of the reductions passed under Bush for middle-class folks but end the reductions that benefit families with incomes of $250,000 or more. The cuts affect marginal tax rates and taxes on capital gains, dividend income and inheritances. In each case, the White House wants rates to increase for wealthier Americans, arguing the hike would reduce the deficit by $670 billion over 10 years.

Thinking they also have a good issue, Republicans counter that Democrats shouldn’t raise taxes now, especially on those small business owners who use individual rates to file their taxes. Even some Democrats agree. Democratic Rep. Bobby Bright of Alabama told The Hill newspaper that “in a recession you don’t tax, burden and restrict.”

Bloodbath debate

So while we appear teed up for a bloodbath debate, there is a way out:

First, Congress could extend the cuts for the next year or two. The deficit admittedly would increase some, but postponing the decision would avoid a tax hike in a struggling economy.

Second, Congress could then fold the debate over tax cuts for the wealthy into a larger discussion about other taxing-and-spending choices.

There’s an opening for that conversation, too. The panel President Barack Obama created to find ways to reduce the debt and deficit must report back to him and Congress after the fall elections.

If things go as planned, the commission will offer specific ways to reduce the $1.4 trillion deficit by 50 percent over five years. It will give us ideas about overhauling entitlement programs like Social Security and present suggestions for revamping the tax code.

After that, Congress could start mixing and matching the best solutions. Maybe we keep some or all of the Bush tax cuts. Maybe not. Maybe we instead go for a flatter tax code, one with just a couple of rates.

Maybe we even get rid of some tax “sweeteners,” including the one that gives many of us a break on our home mortgage payments. I can’t believe I just wrote that; I love that deduction. But everyone needs to pitch in to reduce the deficit.

That includes families that make $250,000 or more. It’s getting old watching the Obama administration play the class card, but the wealthy can’t escape paying their fair share in the deficit war we need to wage. If Congress keeps the current tax code, and enough legislators want to make tax cuts for the wealthy permanent, it also must find a way to offset the cost.

There will be many moving parts in the upcoming debt/deficit discussion, so to focus now on tax breaks for the rich misses the larger point. In fact, it could undermine a grand bargain.

‘Hammer’

Extending the tax reductions for two years keeps them alive as a “hammer” that could force a compromise on taxes and spending. If Republicans want to make those reductions permanent, they must agree to a broader deal about reducing the deficit.

And here’s one more believe-it-or-not: A grand bargain is not a wishful thought.

If Republicans gain control of one or both houses of Congress in November, they must show they can govern to have a shot in the 2012 presidential race. If Democrats remain in charge, they must show they are serious about the debt in order to help re-elect Obama.

William McKenzie is an editorial columnist for The Dallas Morning News. Distributed by McClatchy-Tribune Information Services.