Letting Temporary Tax Cuts Expire ≠ Raising Taxes

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(By Andrew MacKie-Mason)

I've written about this relatively obvious fact before, but it's worth bringing up again in light of the flare-up over several Republicans suggesting that they'd be willing to "violate" Grover Norquist's no-tax-increases pledge in order to let the Bush tax cuts for the wealthiest Americans expire. I don't want to get into the debate about whether it's fair to blame Norquist for the evils that the pledge has wrought: both sides have fair points. But I do want to point out that the entire issue is based on a false premise: letting tax cuts expire simply does not violate the pledge.

The pledge reads:

I, _______________, pledge to the taxpayers of the _____ districtof the state of__________, and to the American people that I will:

ONE, oppose any and all efforts to increase the marginal income taxrates for individuals and/or businesses; and

TWO, oppose any net reduction or elimination of deductions andcredits, unless matched dollar for dollar by further reducing tax rates.

What's at issue is clearly the first clause, so the question is whether letting the Bush tax cuts expire is "increas[ing] the marginal income tax rates." And the answer is obviously no.

There are two sorts of tax bills that Congress can pass: temporary and permanent. But what do those labels really mean? Nothing that Congress ever does is really "permanent," since any future Congress can pass a new law which overrides it. The only difference between temporary tax bills and permanent tax bills is, thus, the baseline that they set for the future.

When Congress passes, say, a five-year tax cut, they are setting the rates that will take effect by default, in the absence of future Congressional action. But when Congress passes a permanent tax cut, they are defining a new normal: the lower tax rate becomes the default, until a future Congress decides to change it again.

Politicians are able to sell temporary tax cuts to the American people partially because they do not define a new normal. They institute a temporary change to deal with a temporary problem, with the expectation that in a few years, things will return to the way they are. Temporary tax cuts thus get a political benefit from the expectation that they will expire on a certain date.

If, when several years have passed, we treat the expiration of the tax cut as a "tax increase," we are letting those who want to cut taxes have it both ways. They get the benefit of the temporary nature of the tax cut, and then several years later they get the benefit of rhetoric about raising taxes. That's why it's important to remember that letting a temporary tax cut expire is not a tax increase. It is letting things return to normal.

So, Republicans who signed Norquist's pledge but who are interested in sane governance shouldn't be worried. They can allow the tax cuts to expire without violating the (stupid) promise they made to their constituents.