Obama Tax Cuts: To Have Or Have Not

TW: The two attached articles address the same topic, whether Obama should actually follow through on his tax policy outlined in the campaign given the economic crisis, but come from different angles. Surowiecki at New Yorker asks whether raising taxes on wealthy folks is prudent given the need for them to raise their spending not lower it during a severe recession. The Economist article asks if the middle class folks to whom a tax cut was promised would forgive Obama given everything going on the same economic crisis. My view is that unfortunately there is a strong chance Obama will grab the worst of both worlds, cut taxes on the middle class as part of a stimulus while not increasing taxes on the more wealthy.

While a decent theoretical argument could be made for a stimulus in the form of a middle class tax cut, I wonder when if ever our country will face up to the need for sacrifice. Sacrifice will be the topic for a later post, but one of the real dangers of the rush to address this very severe crisis is that we are writing checks we ultimately cannot cash. At some point taxes will have to go up or spending will have to be slashed (assuming we avert a depression) on some combination of defense/veteran benefits/homeland security, social security and medicare.

From New Yorker:
"...almost nothing has been said about whether Obama’s plan to raise income taxes on high earners makes economic sense in the short run.
In the long run, allowing the Bush tax cuts to lapse, restoring tax rates to where they were during the Clinton Administration, seems not just fair (given the outsized gains enjoyed by high-income earners during the past decade) but necessary, given the massive and ever-increasing deficits we’re piling up. But in the short run, raising taxes in the middle of a recession is a rather different matter...the top quintile of American earners account, on their own, for about as much consumer spending as the other four quintiles combined. That’s obviously a sign of how unequal the country’s income distribution has become. But it also means that when the rich curtail consumption, everyone feels it."

From Economist:
"PEOPLE want the tax cuts promised during the presidential campaign, but may be willing to wait while President-elect Obama takes on the larger issue of fixing the economy," reports the AP. In a new poll, only 36% of respondents said tax cuts should top the president-elect's agenda, while 84% said improving the economy should be a top goal. Will Barack Obama use this opening (and the very valid excuse of a trillion-dollar deficit) to forgo the tax cuts..."
http://www.economist.com/blogs/democracyinamerica/2008/11/will_obama_keep_his_promise_on.cfm
http://www.newyorker.com/online/blogs/jamessurowiecki/2008/11/can-we-afford-t.html