Democrat idea to let Bush tax cuts expire is “madness”: Holtz-Eakin
August 3, 2012
The Wall Street Journal
Democratic Party official suggestions that they might be willing to let Bush era tax cuts expire in an effort to change the political dynamic in Washington is “madness,” will have a dire impact and plunge the U.S. back into a recession.
At least that’s the perspective of Doug Holtz-Eakin, a campaign adviser to former Republican presidential candidate John McCain.
Last month a leading Democratic senator, Patty Murray of Washington state, suggested Democrats are willing to let the country fall off the so-called “fiscal cliff” at the end of the year if Republicans won’t agree to raise taxes for upper-income Americans.
The “fiscal cliff” refers to the substantial spending cuts and tax increases for middle and upper income individuals scheduled to go into effect at the beginning of 2013 unless Congress reaches a compromise. Murray contends that if Democrats and Republicans can’t reach a deal by the end of the year then Republicans will be pressed to reach a compromise to cut taxes for the middle-class (and not high-income earners) in 2013 after the Bush era tax cuts expire for everyone.
However, Eakin says that while he understands what Democrats are trying to do politically, he believes it would drive people to panic and plunge the U.S. back into recession.
“I think the recession happens. The logic behind that position is ‘we can comfort every American firm, every American household and global markets and we can go over this [fiscal cliff] and we don’t mean it really and we’re kidding about the $400 billion tax increase, honest, we’re going to make a tax cut,’” said Holtz-Eakin, speaking at a U.S. Chamber of Commerce event. “There is no way you are going to convince people on that when you can’t get a deal and that is why you are doing political gamesmanship. It’s implausible that you can make that case and not have people panic. It will hit [recession] and hit quickly.”
Others at the U.S. Chamber, not surprisingly, agreed with him.
Martin Regalia, chief economist at the U.S. Chamber, said the impact of the tax hikes would hit quickly and drive a deep recession “right off the bat” and hurt Democrats at the elections in November. He added that it would be a bureaucratic nightmare for the Treasury Department to change its tax regulations when the tax cuts expire and then change them again three or four months later when there is a deal on tax cuts.
“In a political sense if the voting public saw their elected representatives turning up the heat … with an actual steep and deep recession, they probably wouldn’t fare well in the next election. I don’t see political benefits for that,” Regalia said.
Kate Warne, investment strategist at Edward Jones, said it would have an immediately negative impact on the markets because cuts would happen immediately and consumers would react to having less income coming in right away without having any confidence that policy makers would cut taxes in the coming months.
“The money comes out of people’s pocket books instantly,” she said. “The fact that you might say we’ll reverse it later. People still make decisions on what the policy is today. They don’t have confidence that [policymakers will] reverse later and that they should make different decisions under their current circumstances.”