The price of politics (September edition): Over a grand per year to the average family

Bloomberg reported today that the Senate will not vote on extending the Bush tax cuts until after the election. If no extension is passed by year end, tax rates will revert to the 2001 levels. Meaning higher taxes for all taxpayers.

Please refer to the table below. Tax levels are shown for multiple income levels under the four scenarios in play currently. The first column is the 2001 tax level, second is the current policy, third is Obama’s budget plan and fourth is the House Democrats’ plan. Play particular attention to the last column which shows the incremental tax owed if the current tax cuts expire. Notice the $60,000 annual income row which is only slightly above the median family income of $50,233. A family earning $60,000 annually would see their taxes increase by $1,156, nearly $100 per month.

Alec Phillips, a Goldman Sachs economist, estimates the effects of this direct reduction of income as follows:

“Gross domestic product would be cut by almost 2 percentage points if Congress doesn’t extend the tax cuts as well as temporary tax credits under the 2009 stimulus bill and relief from the alternative minimum tax, Phillips calculated.

Even a temporary lapse in the tax provisions “would essentially wipe out most of the modest growth we expect in the first half of 2011,” Phillips wrote in the research note. He said in a phone interview that a higher tax rate in the first two months of the year would have that effect.”

The worst part of this whole ordeal is that everyone seems to agree on the passing the tax cuts, it’s simply a question of how to frame the issue and which party will get credit.

Democrats are afraid of bringing the bill up for a vote and it not passing.

“We have a winning message now, why muddy it up with a failed vote, because, of course, Republicans are going to block everything,” a senior Senate Democratic aide said.”

Republicans are fighting for taxes cuts for higher level wage earners. Each is blaming each other. Despite an economy that is struggling to get back on track, it is politics as usual in Washington. Qualified or not, it is no wonder why the Tea Party and other third-party candidates are picking up steam heading into election season.

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