Republicans in their extension of federal capital gains and dividends tax cuts have effectively destroyed the possibility of fiscal solvency. (See last week's coverage.) At the same time, it is an indication they may have given up on retaining effective control of Congress. Otherwise, Why would they worry about the years 2008-09? Those are the years affected by the capital gains extension.
While the corporate Republicans who dominate our government are stupid, they are not dumb. They must see the continuation of these massive deficits into the retirement years of the baby boomers is to finance what a millstone is to swimming. If they are assuming the loss of Congress, they may be setting up the Democrats as the bad guys who raise taxes "just like we told you they would."
The continuation of capital gains and dividends tax cuts is, then, the equivalent of torching the town after you've looted it. These are rich man's cuts, affecting only the top 2% of the population. Securities in 401(k) and other tax shelters are not affected, either now or at payout time.
But as I mentioned before, capital gains tax rates rising was negotiated in the Tax Reform Act of 1986 (aka the Bradley Bill) as a condition for top marginal rates falling. Now that the Republicans have reneged on that deal, perhaps it is time to consider top marginal rates of, say, 60 percent for those earning $500,000 or more.
But again, don't worry about your sales tax deduction on next year's income tax. Pretty soon here, the GOP will roll out the cameras for its :Champion of the little guy" show, and as our hero against the big bad government they will propose to extend the sales tax deduction and the other middle class tax cuts. Democrats will join them, as they should. This may be repeating myself, but remember, Washington is not the only sales tax state. Texas, Florida, and North Carolina (Frist) are also on that short list of states without an income tax.