Rove barks at Dems over GOP's expiration date on tax cuts

Blog ››› ››› JEREMY HOLDEN

Tonight, Karl Rove went On the Record to rewrite the record of the Bush tax cuts.

Blasting Democrats for not extending permanently the unpaid-for tax cuts, Rove -- without a hint of self-awareness -- complained, "We've known this was going to be happening for a decade."

You don't say.

In a June 1, 2003, Washington Post column, Fortune's Anna Bernasek explained just how it is that we've "known it will happen for a decade," writing, "If tax cuts were an art form, President Bush would be the Picasso of the policy world," and noting that "[d]eft illusions such as sunset clauses" were used to mask the cost of the tax cut.

Bernasek went on to explain how provisions in the Bush tax cuts "might have unintended consequences that will turn out to hurt the economy":

To understand why that might be the case, start with those sunset clauses, which will expire after one to five years -- barring future congressional action -- and which therefore make the cost of the tax package appear smaller than it is. The sunset is a gimmick that creates a lot of unnecessary confusion and unnecessarily complicates the tax code. All of which is a drag on economic activity.

Practically every key initiative -- like the income tax cuts, child tax rebate, dividend and capital gains cuts -- expires between 2004 and 2011. How are taxpayers supposed to keep track of what expires when, and plan accordingly? And more importantly, if people know those cuts are temporary, will they change their behavior and spend the money?

For instance, one initiative is supposed to encourage investors to buy stocks by cutting dividend and capital gains taxes. But since those cuts may or may not be phased out in a few years, there's a fair degree of uncertainty attached to the changes. And since investors don't like uncertainty, they may not be encouraged to buy more stocks.

Ultimately though, the biggest form of uncertainty from the sunset clauses has to do with the true state of our nation's fiscal position. As with the old British Empire, the sun rarely sets on a tax break. So if the government extends the sunset clauses through 2013, then the tax package ends up costing $ 800 billion or more over 10 years instead of $ 350 billion. And that makes a big difference to the health of our national finances.

But sitting in his Fox News studio, sipping on a Slurpee, Rove knew just who to blame:

President Obama has had all year and big majorities in the Congress -- in both Houses. Democrats in control of the Senate and Democrats in control of the House. And they haven't been able to come up with a consensus inside the Democratic Party.

Posted In
Economy, Taxes
We've changed our commenting system to Disqus.
Instructions for signing up and claiming your comment history are located here.
Updated rules for commenting are here.