The clock is ticking on the package of tax cuts that President Bush and the Republican Congress passed in 2001. The “Bush Tax Cuts” as they’re generically called were cuts in the marginal tax rates that were in place at the time. All marginal rates were cut, and because the United States uses a progressive tax code, the higher wage earners got the biggest bang from the reduced rates. But these cuts in the tax rates were temporary; a 10 year reduction in rates to boost a sagging economy. President Bush and the Republican Congress passed a tax package with an expiration date and that date is rapidly approaching. As the deadline looms, the rhetoric will increase in frequency and intensity.

We’ve already heard cries from Republicans and conservative organizations that President Obama is planning a massive tax increase. This is patently false as the President and the Democratic Congress have proposed no tax increases. Tax rates will increase in Jan 2011, but not because the Democrats and President Obama did anything. They’ll increase because that’s how President Bush and the Republicans set it up.

What the President wants to do, just as he indicated while campaigning for President, is to extend or even make permanent the current rates for families making $250,000 a year or less, and allow the tax cuts to expire for those above $250,000, in effect returning those rates to the pre-Bush Tax Cut era. The reason for this is rather obvious; there is a gaping hole in the Federal Budget and a Mt Everest sized debt burden weighing down the United States. Cuts in spending, unless they include deep and comprehensive cuts in Medicare, Social Security and Defense Spending, will not get the job done.

The Republicans, feeling empowered by their electoral victories a few days ago, have indicated they will not compromise with the President and want all of the Bush Tax Cuts extended. This is irresponsible at best, reprehensible at worst. The wealthiest Americans today are wealthier than they have ever been. The average CEO of a large American corporation makes 531 times more than the average employee of that corporation. In 1976, that average was only 42 times more. The gap between rich and poor in the US is the largest it’s been since the Great Depression. The rich have always been able to get richer, but our government, a government by and for the people, has been very helpful the last few decades. I don’t begrudge anyone their fortunes, but it’s a matter of tax fairness and fiscal responsibility. Warren Buffett, one of the richest men in the world, pays a lower tax rate than his secretary. This is not through any trickery or offshore tax shelters. He still does his own taxes and just follows the rules he’s been given by the Federal Government. He has made this very public and offered $1 Million to the charity of their choosing to any CEO in America who took the same test and published the results. None took him up on the offer. The richest Americans will not be hurt by restoring pre-Bush Tax Cut rates in the progressive tax code. The argument that the wealthy will use their tax savings to create jobs is a house of cards as clearly evidenced by the loss of millions of jobs across the country even while the wealthy enjoyed their lower tax rates. Millionaire athletes, actors, hedge fund managers, etc. are not creating jobs with their fortunes. They are not opening factories, starting businesses, or building high-speed rail across America.

President Obama wants to get things done. He is willing to compromise with his opponents to accomplish what he believes is best for the American people. However, a compromise on this issue would be deadly politically, and incredibly costly economically for the country. The Republicans will speak loudly and boisterously about their unwillingness to increase taxes on any American in these tough economic times. They will state boldly that they refuse to compromise with the President on extending all of the Bush Tax Cuts. However this is nothing but talk. Without action by the Congress and a signature from the President, the Tax Cuts will go away all by themselves. If I was advising the President, I’d tell him the last two years have shown that the Republican party has no intention of working with him on anything. If there is to be compromise, it will only be the Democrats and the President who will do the compromising. I would advise him to allow the tax cuts to expire just as the Republicans intended when they passed them in 2001. I would advise him to present his own package of tax cuts and incentives, targeted to the middle class families who need them, the small businesses who will use them to expand, the large businesses for retraining programs and the hiring of the currently unemployed. Then stand back and see if the Republicans will argue against cutting taxes. That will be an interesting argument to watch.