Forget Bed Bugs, Tax Increases Are Bush’s Fault: Caroline Baum

Congressional Democrats like to blame former President George W. Bush for just about everything: the lousy economy, high unemployment, trillion-dollar deficits, two wars -- and probably the bed bug epidemic in New York City.

With the 2010 midterm elections 10 weeks away, Democrats are debating whether “blame Bush” is still a winning strategy almost two years into the reign of Barack Obama.

In general, it’s not. If the Democrats were smart, they would refocus their campaign and point a finger at Bush for the one thing they can rightly blame him for: the “biggest tax increase in history.”

Yes, you read that correctly. Congressional Republicans may be gearing up to blame their Democratic colleagues for a failure to extend the 2001 and 2003 tax cuts for all income brackets, but the Democrats can lob it right back across the aisle.

If lawmakers twiddle their thumbs before the November election, and the lame ducks turn out to be sitting ducks, then marginal tax rates, along with capital gains, dividends and estate tax rates, will rise come Dec. 31.

Travel back with me to the early, heady days of 2001, when the nonpartisan Congressional Budget Office was projecting a 10- year surplus of $5.6 trillion.

Phantom Surplus

That surplus was always written in invisible ink -- $4 trillion of it vanished in the first year. That didn’t stop then-Federal Reserve Chairman Alan Greenspan from promoting the Endless Surplus forecast. Never one to stick to his monetary metier, Greenspan put his stamp of approval on Bush’s proposed $1.35 trillion tax cut.

In order to enact a tax cut of that size with the Senate evenly divided, Congress used the reconciliation process, which requires a simple majority, not a 60-vote filibuster-proof majority.

If proposed legislation increases the federal deficit beyond the 10-year budget window, it is subject to a 60-vote point of order as provided by the Byrd Rule, named after the late West Virginia Senator Robert Byrd. The rule was designed to prevent lawmakers from adding extraneous amendments to reconciliation bills.

Everyone knew or should have known that this was a temporary tax cut (wink, wink) designed to put pressure on future Congresses. After all, no lawmaker wants to run on a platform of: “Vote for me, I raised your taxes.”

Temporarily Permanent

“It’s the equivalent of taking out a variable-rate mortgage that is scheduled to increase after five years,” says Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University in Arlington, Virginia. “You know the rate is going to go up.”

That’s how the law was written, de Rugy says. “By spending like drunken sailors, they almost guaranteed that tax cuts would be in jeopardy in the name of the deficit.”

It would have been better, she says, to make the tax cuts permanent and cut spending along the way.

That was then. What’s the party in power to do now? Raising taxes isn’t an ideal prescription for an economy that is limping along. Even Keynesian economists will tell you higher taxes slow growth.

If you are President Obama, you have to be worried your Summer of Recovery will yield to a Fall off a Cliff -- for the economy and for your party in November’s elections -- and a Winter of Discontent. It may not be a good time for class warfare.

Raise Taxes, Clean House

My advice to you would be to take the high ground. Stop blaming Bush for small business’s reticence to hire new workers after you heaped new and unknown health-care burdens on them. Or for the dive in new and existing home sales once you stopped paying people to buy houses.

Start appealing to the masses on the irresponsible nature of a budget process that will result in tax increases at the worst possible time.

As the pundits like to say, if the private sector ran its books like the government, many chief executives would be behind bars (a few already are).

I say, let the tax cuts expire. It’s probably the first and only time I agree with Greenspan on anything. Bush and Congress made their cockamamie bed. Now they can lie in it.

If the economy tanks, the public will throw all the bums out, which is the best way I can think of to clean house. The hope is that one day we’ll get responsible legislators who do what’s right for the country in the long run, not for the next election cycle or to appease a select group of donors, I mean, constituents.

“We need to make it good politics to have better budget policy,” says Douglas Holtz-Eakin, president of the American Action Forum, a Washington think tank, and CBO director from 2003 to 2006.

Less red ink, no invisible ink: That’s my motto and a good place to start.

(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)

To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net.

To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net

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