BY STEVE BELL

      At the end of this calendar year, the so-called Bush Tax Cuts of 2001 and 2003 expire.  In order for any of the cuts to continue, Congress must pass a bill the President will sign.  So far, so simple. 

      President Obama proposed in his budget that all Bush tax cuts for filers over $200,000 (single) or $250,000 (joint) be allowed to expire as in current law.  He also proposed that all of the rest of the tax cuts for middle class earners and other workers be continued.  By all accounts, his party faithful in Congress by and large agree with this approach, both as policy and as good politics.

      The questions that political and legislative analysts must answer are three-fold:  1)  how will any of these tax cuts continue, with the adversarial atmosphere in both the House and Senate; 2)  what procedure will allow Democrats to pick and choose which tax cuts continue and which expire; 3)  who will get the blame when the tax mess hits the political fan.

             Congress has only one clear-cut route to take, the Reconciliation process of the Budget Act.  Yet, so far Congress has given every indication that it is scared to death to even try to pass a FY2011 budget this year.  Without a budget, no reconciliation.  Without reconciliation, the tax battle on the Senate floor will be like an Native American knife fight.  The Democratic Party seems extraordinarily short-sighted if it really wants to put the Republicans in Congress on the defensive for once.

      Congress has already found it near impossible to pass the tax extenders bill that annually mitigates the Alternative Minimum Tax, keeps doctors protected from large cuts in Medicare reimbursement, continues Unemployment Insurance, and extends popular tax breaks.  If that small a bill gums up the legislative works, it is clear that the Bush tax cuts package may simply bring Congress to full stalemate.

      As an aside, the Congressional Budget Office in its FY2011 current policy budget assumed that the Bush tax cuts would expire.  That cut anticipated future deficits by about $3.1 trillion, a number which is not set in concrete.  Of that $3.1 trillion, approximately $0.7 trillion goes to high income filers.  The other $2.4 trillion in cuts actually goes to the middle class and those who pay no taxes at all.

      Forget about the numbers for a while.  Look at the kinds of tax changes hitting lower income earners if the Bush tax cuts expire: revocation of the marriage penalty; increases in capital gains and dividend taxes; elimination of the 10 per cent bracket; elimination of the dependent child care credidt increase, the adoption credit and adoption assistance exclusion,  the increase in the child tax credit,  the American Opportunity Tax Credit, and the earned income tax credit broadening. And that’s just a small portion of provisions helping middle income Americans.

      Neither party can allow those kinds of tax increases, especially with a jobless recovery and unstable financial markets.

      Democrats would, of course, like to put Republicans in the position of opposing continuation of tax cuts for “the little guy.”  Republicans not only must avoid that, but must also explain why tax increases on “the wealthy” are bad for the economy.  In short, if Democrats can find a way to present a bill that allows the higher income tax provisions to expire, but keeps all of the other Bush tax cuts, they can move dramtically towards control of the political message going into 2011.

      To sum it all up, then–it would be politically and economically stupid to allow all the Bush tax cuts to expire.  Democrats must find a way to avoid that outcome.

      The only obvious, sure way to do that is for Congress to pass a budget for FY11, with reconciliation instructions to the appropriate committees, structured in the manner the President requested, The House leadership must work with Senate Demolcrats to pass a budget, by hook or crook. Then we shall see the classic fight in politics–deficits  versus jobs.

      Or, both parties could decide just to continue all of the Bush tax cuts for two or three years and pass the problem down the road. That would be complete repudiation of one of the basic planks in the Obama platform and would really anger the “progressive” wing of his party.

     If history is any guide, the short term political gain in terms of jobs and middle class tax cuts will trump the longer-term, but very real, threat, of higher deficits.  Watch for a “sudden” decision to pass a budget, with reconciliation–another example of Occan’s Law.

Editor’s Note: Steve Bell is a Visiting Scholar at the BiPartisan Policy Center at Washington, D.C., and a consultant to financial firms.