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Geithner: Taxes on Wealthy to Rise

Yesterday, Treasury Secretary Timothy Geithner confirmed a well-known fact: The Obama administration and many congressional Democrats are in agreement that the bulk of the Bush tax cuts need to be kept in place, to keep the tax burden on middle-class families low. But to close the deficit, taxes need to revert to pre-2001 levels for wealthy Americans. “We believe it is appropriate to let those tax cuts that go to the most fortunate expire,” Geithner said.

But Republicans and some centrist Democrats are also in agreement: Rising taxes gives families less money to spend, and that means a slower recovery. “I think given the fragility of the recovery, the timing is wrong for any kind of tax increase of this nature,” Rep. Gerry Connolly (D-Va.) told The Wall Street Journal. “I know that puts me out of step with many in my own caucus, but it’s important for members to remember the top 5 percent [of earners] generates 30 percent of consumer spending.”

Importantly, Sen. Kent Conrad (D-N.D.), the chair of the Senate Budget Committee, has said he does not support tax increases on any workers, yet. “As a general rule, you don’t want to be cutting spending or raising taxes in the midst of a downturn,” he says. “At the same time, we know that very soon we’ve got to pivot and focus on the deficit,” he said. “But it probably is too soon to cut spending or raise taxes.”

To get a bill over the Senate’s 60-vote cloture hurdle, therefore, Democrats might extend the totality of the cuts for two years, and include a long-term plan to raise taxes on wealthy Americans, perhaps followed by other income bands far down the road. The Bush tax cuts cost the government over $1 trillion in revenue. And economists argue that tax cuts have a wan stimulative effect in comparison with expanding the unemployment insurance system or programs like the Supplementary Nutrition Assistance Program, or SNAP benefits, formerly known as food stamps.

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