The news is out today that the congressional conference committee set up to try to reach agreement on a budget deal has hit a "snag". Apparently, a snag is somewhat like a glitch except that it does not involve use of a computer. According to Reuters, the Democrats want to replace some spending cuts with tax increases, a move which the Republicans do not want. In other words, we appear once again to have arrived at the battle in which Democrats want tax and spending increases and Republicans want no tax or spending increases. Of course, a failure to reach agreement means there will be no tax or spending increases, so it is hard to see the GOP agreeing to the Democrats demands. Nevertheless, this may be a mistake.
The tax increases being proposed by the Democrats are mostly tiny. Reuters says they include ending deductions for vacation homes, yachts and corporate jets, which would bring in just under $2 billion per year, together with ending a break that allows hedge fund managers and private equity advisers to be taxed at the lower capital gains rate, a move that would bring in about 1.7 billion per year. These goodies for the rich are all things that the Democrats put into the tax code in the past as favors for their friends. The GOP should agree to them and call the Democrats bluff.
For example, the lower tax rate for hedge fund managers was snuck into the tax code by Connecticut Democrat Chris Dodd over a decade ago as a favor to his backers in Fairfield Country where I live. There is no good reason why hedge fund managers should pay a lower tax rate than people who work in other industries. It wasn't fair when Dodd got the provision in the law, and it still is not fair. The tax breaks on corporate jets was put into the tax code by president Obama in the stimulus bill in 2009. There is no reason why it has to stay in the code now.
Clearly, it is a mistake to have major tax increases which will put a further burden on the economy while it remains so weak. If tiny modifications like those mentioned above will move the Democrats to agree to other spending moves that will be good for the country, however, the Republicans should agree to them in my opinion.
The tax increases being proposed by the Democrats are mostly tiny. Reuters says they include ending deductions for vacation homes, yachts and corporate jets, which would bring in just under $2 billion per year, together with ending a break that allows hedge fund managers and private equity advisers to be taxed at the lower capital gains rate, a move that would bring in about 1.7 billion per year. These goodies for the rich are all things that the Democrats put into the tax code in the past as favors for their friends. The GOP should agree to them and call the Democrats bluff.
For example, the lower tax rate for hedge fund managers was snuck into the tax code by Connecticut Democrat Chris Dodd over a decade ago as a favor to his backers in Fairfield Country where I live. There is no good reason why hedge fund managers should pay a lower tax rate than people who work in other industries. It wasn't fair when Dodd got the provision in the law, and it still is not fair. The tax breaks on corporate jets was put into the tax code by president Obama in the stimulus bill in 2009. There is no reason why it has to stay in the code now.
Clearly, it is a mistake to have major tax increases which will put a further burden on the economy while it remains so weak. If tiny modifications like those mentioned above will move the Democrats to agree to other spending moves that will be good for the country, however, the Republicans should agree to them in my opinion.
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