Regular readers of "A Dash" know that I have long expected a continuation of major portions of the Bush-era tax cuts. Both articles are still quite timely, so check them out if you missed them the first time.
In June I wrote two pieces referencing this issue. In the first, I analyzed the WSJ op-ed from Art Laffer, and a range of responses by James Altucher, Barry Ritholtz, Asha Bangalore, and Brian Wesbury. I also cited David Stockman's book.
In the second I made some specific predictions, including the following:
The consideration of the Bush tax cuts will lead to a number of compromises. Taxes will be increased, but some of the cuts will be preserved -- at least in part. Like all compromises, everyone will hate the result. The final tax rates will be lower than we had in the Clinton era.
As you can see from this chart from Google Trends, those of us writing on this topic were several weeks ahead of the crowd.
I expected this issue to be significant during the latter part of 2010.
The Kauffman Poll
I have been participating in a quarterly survey of leading economic bloggers administered by the Kauffman Foundation. I also attended their March conference which brought together economic bloggers of diverse backgrounds. It has been a very valuable experience for me, informing and assisting my work. For the current survey, I was offered the chance to submit a question -- a gracious opportunity that I seized with enthusiasm!
Here is my question and the response from my blogging colleagues.
Please note that the question was posed as what would happen, not what should happen. As usual, it is possible to have a lively debate on both the normative and the empirical aspects of the issue.
Readers should note that the survey was conducted in the July 14th - July 21st time frame. There has been plenty of information and analysis since then.
My Own Take
The chances for extension of the various tax cuts is greater than my blogging colleagues expect. I have three key reasons:
- The vote will not follow party lines. There will be an interesting coalition. Opponents may include fiscal hawks and the very liberal, while the supporters may be more centrist.
- The issues have many dimensions, all of which are quantitative. This is an open field for compromise. To take one example, I predict that there is almost no chance that capital gains taxes will go back to the old levels. A rise from 15% to 20% is possible. The point is that there is room for horse trading and coalition building on each of many different issues.
- Obama is more receptive than most think. I realize that Geithner signaled a hard line, but this is a bargaining position. Those who confuse their politics with their investing forget that Obama indicated compromise potential even during the campaign. Check out this September, 2008 statement.
Briefly put, some of the punditry is too doctrinaire. We will see a compromise on this. As is the nature of compromise, it will not be endorsed by anyone. It will not be my favorite policy, nor yours.
That is not the important issue for investors.
The result will be more market-friendly than current expectations.
And finally...... look for the final results from the rest of the Kauffman poll. These will be released soon, and there are many excellent questions.