October 2010- As I write this column for the October issue, Hurricane Earl is bearing down on the Outer Banks as a Category 3 storm, certain to cause beach erosion, moderate flooding along the coast and possible wind damage to a host of multimillion dollar vacation homes on the narrow strip of land between Cape Hatteras, N.C., and the Virginia state line. But a bigger storm is brewing in our nation’s capital over whether to renew a series of tax cuts known as "the Bush tax cuts," which Congress implemented earlier this decade.

Existing tax cuts
Slated to expire at midnight on December 31, 2010, these tax cuts currently impact the lives of most Americans--from our country’s wealthiest to the youngest newborns.

Enacted by Congress at the urging of then-president George W. Bush in 2001 and 2003, the package included rate reductions for most Americans, favorable tax treatment for retirement and college tuition plans, an elimination of the estate tax and even a provision allowing employees to receive up to $5,250 annually in tax-free educational assistance from their employers to offset the costs of continued education.

With a projected cost of $2.2 trillion and $3.8 trillion during the next 10 years, many question whether the country can afford extending these cuts at a time of record deficits. Others express concerns that the last thing this economy or the tax payers need is a tax increase.

But if Congress heeds the recent warnings of some prominent tax-cut proponents from years past, New Year’s Eve 2010 could be a gloomy night for a number of Americans.

Make a decision
David Stockman, the former Office of Management and Budget director in the early years of Ronald Reagan’s presidency, recently noted the numbers just don’t add up during an August interview on NPR’s "All Things Considered."

"So we’re spending $3.8 trillion in defense, non-defense, entitlements, everything else, and we’re taking in only $2.2 trillion. So we got a massive gap. You have to pay your bills," Stockman noted. "You can’t keep borrowing from the rest of the world at that magnitude, year after year after year. So in light of all of those facts, I say we can’t afford the Bush tax cuts."

He isn’t alone. Alan Greenspan, the former Federal Reserve Chairman under presidents Ronald Reagan, George H. W. Bush, Bill Clinton, and George W. Bush, recently noted on the Sunday talk show "Meet the Press," "I am very much in favor of tax cuts but not with borrowed money." As such, the U.S. should "follow the law" and allow the Bush tax cuts to expire.

When asked by the show’s moderator, David Gregory, whether he agreed with the belief that tax cuts pay for themselves, Greenspan noted, "They do not." As expected, the political parties on Capitol Hill have vastly divergent views on the subject, but Congress needs to act soon.

As Stockman pointed out in his NPR interview, ". . . we’re borrowing ourselves into grave danger with each passing month and year."

Get the economy moving
With poll after poll projecting their political party is in for a tough election in November, some House and Senate Democrats appear eager to deal with the issue before heading back on the campaign trail when Congress recesses later in October.

They, much like President Obama, believe Republicans will have an extremely difficult time justifying continuing the tax break for Americans making more than $200,000 per year and $250,000 per year for couples. It may be especially difficult because in July, Republicans fought tooth and nail against legislation extending unemployment benefits for the long-term unemployed.

House Minority Leader John Boehner, R-Ohio, recently warned Democrats, "You can’t raise taxes in the middle of a weak economy without risking the double dip in this recession."

According to Boehner, "The only way we’re going to get our economy going again and solve our budget problems is to get the economy moving, get more people back to work where they can care for their own families and begin to expand the tax rolls to bring more revenue to the federal government."

Congress is likely to allow some of these tax cuts (particularly those involving IRA contributions and rate cuts for middle-class America) to continue, while the fate of the estate tax or extending the rate reduction for the wealthiest Americans is anything but certain.

Who will prevail in the end? Only time will tell. MM

Bob Carragher is the former Washington affairs representative for the Metals Service Center Institute and an avid observer of Capitol Hill.