Thursday, July 22, 2010


President Bush requested and Congress approved what are now known as the Bush Tax Cuts. Those cuts are due to expire on December 31, 2010 (less than 6 months from now). What happens then. Here is the analysis from the Heritage Foundation. (Make the Bush Tax Cuts Permanent)
If the tax cuts of 2001 and 2003 are allowed to expire, millions of working families will see their economic prospects dim, their job opportunities diminish, and economic uncertainty rise.
By the way this study was published on January 5, 2006, but nothing has changed these findings.

Taking a look at what Taxes were cut, will reveal how your Taxes will change.
  • Tax rates will rise substantially in each tax bracket, some by 450 basis points; [4.5%]
  • Low-income taxpayers will see the 10-percent tax bracket disappear, and they will have to pay taxes at the 15-percent rate; [50% increase]
  • Married taxpayers will see the marriage penalty return;
  • Taxpayers with children will lose 50 percent of their child tax credits;
  • taxes on dividends will increase beginning on January 1, 2009;
  • taxes on capital gains will increase, also beginning on January 1, 2009; and
  • Federal death taxes will come back to life in 2011, after fading down to nothing in 2010.
[Note: the dividends and capital gains items were extended by further tax cuts in 2006. The correct date for increased taxes on dividends and capital gains is now also January 1, 2011]
What if the Bush Tax Cuts are made permanent? These are the economic benefits starting in 2011.
  • Total employment will rise by 1,087,000 jobs per year, on average;
  • Annual GDP will be over $111 billion higher, after inflation;
  • Personal savings will grow by $163 billion per year, on average, after inflation; and
  • After-tax household income will grow by an annual average of $274 billion per year, after inflation.
However, these benefits become economic losses if Congress fails to make the 2001 and 2003 tax cuts permanent. What is the cost of failing to act? Over one million lost jobs each year between 2011 and 2014; over a hundred billion dollars less in economic output per year; slower wage and salary growth; slower savings growth; and so on.
The argument on the Liberal side of the aisle is that we cannot afford the loss of income extending the tax cuts will cause. Further any tax cut should not benefit the wealthy. Therefore Liberals/Democrats in Congress will only allow those tax cuts to expire on those making $250,000 or more (the wealthy).

Conservative/Republicans in Congress disagree. The fact remains that taxing the wealthy increases the share of Tax Revenue the rich pay. But, if tax increases take more of the Wealthy Classes money, the economy will suffer, unemployment will grow and Tax Revenue will actually decrease. It is a never ending spiral to bankruptcy.

Why can this claim be made? The reason is simple. Those who have wealth, are the ones who invest and expand capacity in business. Investment and expansion of capacity creates jobs. Those who have jobs, pay taxes. The more who pay something, the more tax revenue increases. It is true that as a by-product of the investment/expansion the rich get more too. But the benefits accumulate more for the not so rich. They have jobs. They can spend money. They pay taxes. It is the American dream that anyone can become wealthy. But they need a job 1st to start the creation of wealth process.

Think about this. If Tax Increases are good, why stop at a rate of 39.5%? Why not make it 50%, 75% or even 100%? The reason is also obvious. Ask yourself, who creates jobs? The more we take from the wealthy, the less they have to create jobs. The wealthy also have less incentive to earn more. If the wealthy earn less, Tax Revenues also decrease. It is not a never ending bucket to be dipped into at will

However, to end here is not enough. We must also cut spending. The Government is not really much different than your household. Government, like you, cannot continue to spend more than Income without collapsing in Bankruptcy.

We have gotten away from the principle of a budget which we must live within. We have gotten away from the reason Income and other Taxes are necessary. Taxes are necessary to fund our Government Spending. They should be tied together. We must cut spending with the Tax Cuts. Tax Cuts by the way are not the same as additional spending. They do not increase the National Debt. Spending does that. Tax Cuts will, as history has shown, increase Tax Revenue and bring Economic Health to the USA.

Tax Cuts in the short term, reduce income, but we are here for the long term. We all want something better for our children and grandchildren. Tax Cuts, along with Budget Cuts, are the two things that will insure we do leave them something better.

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