When they pile on additional spending with no offsets, that’s when. The bill to extend the Bush tax cuts sailed through the Senate this week and is scheduled to be voted on in the House today. However, it is meeting with bipartisan resistance. Because of its very short-term nature, it does not create market certainty. It piles on an additional $300 billion in spending and makes no cuts to spending. Democrats complain that it extends the tax cuts for all, including small businesses that actually produce jobs. Some were so angry, in fact, that “F— the president” was heard coming out of the Democrat caucus.
Presidential hopeful Mitt Romney, writing in USA Today points out that the temporary nature of the extension removes much of the potential benefit for creating an environment that encourages growth.
Of course, delay now is better than an immediate tax hike. But because the extension is only temporary, a large portion of the investment and job growth that characteristically accompanies low taxes will be lost. When entrepreneurs and employers make decisions to start or expand an enterprise, uncertainty about tax rates translates directly into a reduced propensity to invest and to hire. With only a two-year extension, investors know that before their returns are realized, tax rates may be jacked up to the levels favored by President Obama. So while the tax deal will succeed in temporarily putting more money in the hands of consumers, it will fail to deliver its full potential for creating lasting growth.
Congressman Jason Chaffetz spoke to National Review about the bill. “I think the support is eroding,” he says. “The more people understand that one third of the cost of this bill has nothing to do with the Bush tax cuts, the more unpalatable it becomes.”
Additionally, Moody Investors Service predicts that passing this package without offsetting spending reductions could negatively impact the nation’s credit rating.
According to Bloomberg:
“From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth,” wrote Senior Credit Officer Stephen Hess. “Unless there are offsetting measures, the package will be credit- negative for the U.S. and increase the likelihood of a negative outlook on the U.S. government’s AAA rating during the next two years.”
The GOP has the votes starting January 5th to make the tax cuts permanent and can pass a bill without the extra spending in a straight up or down vote. Frankly, this vote could well be referenced during the 2012 elections as evidence that the GOP learned nothing from 2006 or 2008. Whether out-of-control spending comes from Republicans or Democrats, the American people are sick and tired of larded-up bills. Make the current tax rates permanent and do it January 6th – without any more trips to the trough.