In punting on tax vote, Congress fumbling on important tax policy

It’s football season, so it’s inevitable that pigskin metaphors are going to creep into politics and policy. The big news: Congress has punted on taxes.

Specifically, Democratic congressional leaders left town before voting on what to do about 2001 and 2003 tax relief measures that expire at the end of this year.

If nothing is done, sweeping tax increases will be imposed next year, including higher personal income, capital gains, dividends and estate taxes. If Congress follows President Barack Obama’s lead, big tax increases will be imposed as well, but focused on upper-income earners — at least directly.

Now, with members of Congress at home — and all House seats and a good chunk of Senate seats up for election — taxpayers, including small business owners and investors, are left wondering what’s going to happen on the tax front. Despite knowing that this was coming for more than seven years, our elected officials will wait for a lame duck Congress to make critical decisions at the very last minute.

Of course, the best-case scenario is that congressional leaders, along with the president, come to their economic senses and make the 2001 and 2003 tax relief measures permanent. But barring a miracle, that’s an unlikely outcome with those now in charge.

Next best would be that the president and enough Democrats in Congress come to realize that raising taxes in a bad economy is a very dangerous idea, as economists from most schools of thought would agree. This might lead to a one or two-year extension of the current law.

But then we get to the more likely scenarios. One would be that Congress follows the president’s lead and jacks up taxes on upper-income earners. That would be a huge problem for small businesses given the effects on small business income and incentives for entrepreneurship and investment.

If Congress does nothing, the bad news gets even worse with a bigger tax increase.

But why has Congress elected to punt? If leaders think the president’s idea truly is a good idea, then they should have already moved for passage. If they think this talk of tax hikes is bad for the economy, then they could have laid it all to rest by making the 2001-2003 tax measures permanent or at least extend them further into the future.

However, they’re doing neither. Instead, they’re simply pushing the issue beyond election day. And that speaks volumes.

Apparently, congressional leaders see political negatives in their efforts to increase taxes even on upper-income earners. But they still plan to impose these tax hikes. Therefore, politics dictates pushing the tax increases beyond the elections.

Raymond Keating
Raymond Keating

It’s cynical. It’s bad economics, as uncertainty persists as the threat of destructive tax increases looms large. This is the dismal state of public policy in our nation today.

It’s not a matter of punting. Instead, it’s all about fumbling the policy football and, consequently, doing more damage to entrepreneurship, small business and investment.

Raymond Keating is chief economist for the Small Business & Entrepreneurship Council. Reach him through the website