Thursday, September 2, 2010
Bush Tax Cuts
The Bush tax cuts are set to expire at the end of this year. These cuts " lowered income and investment tax rates, boosted the child credit, reduced the estate tax, and narrowed inequalities affecting married taxpayers." If the tax cuts are extended it will add an additional 2.2 trillion dollars to the federal deficit. Obama suggests extending the tax cuts to families who bring in less than 250,000 dollars a year, which will reduce the deficit by 678 billion dollars from what it would be if all families were given the tax break. No recommendations on this matter will be released until December 1 and it is unclear at this time what will happen. However, at some point the taxes will have to rise again because of the deficit. Merely taxing the top 3% of the population will not eliminate the federal deficit.
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It's a classic case of choosing short-term gains over long-term losses. Normally, I would say that such actions are irresponsible. However, due to the slow recovery of our economy, and particularly jobs, I would argue that if there was a time to not raise taxes on the middle class it would be now. The slight increase in consumer spending of only 0.4% in July indicates that if taxes are raised, the resulting decrease in consumer spending could deal real damage to the economy.
ReplyDeleteAs current news reflects an "exhausted" consumer who is more concerned about saving than investing, the tax cuts should be extended, if not made permanent, to avoid being counterproductive. Congress continues to stand pat (and chances are they won't come to a conclusion with the upcoming election season) the tax rates will increase for everyone. If consumers are looking to save now - increased tax rates will only further encourage this mindset.
ReplyDeleteOn the other hand, money that consumers are saving is not being reinvested back into the economy. If we increased tax revenue we could use the money for stimulus or paying off the debt, and consumers will likely keep consumption constant because for most people right now it is at an all time low anyways and will be difficult to reduce.
ReplyDeleteAs we have learned before, the best way is to lower tax for the poor and the rich, raise tax for the middle, so the middle will learn more and do better to reach the level of the rich.
ReplyDelete