Congress Must Stop The Largest Tax Hike In History: Extend The Bush Tax Cuts}

Submitted by: J. Wesley Fox

In 2011 taxes are due to go up by a considerable amount on middle and high income earners, small businesses and investors. Republicans have long argued that raising taxes during these hard economic times will slow the recovery. To avoid the tax hike, they propose extending the Bush tax cuts past 2011 or making them permanent. President Obama and most Democrats resist the idea. They argue the cuts give tax breaks to the rich and the country cannot afford to keep taxes at the lower rate when we have such a large budget deficit. However, we cannot afford to raise taxes on anyone during this period of weak growth and high unemployment. It is essential to the economic recovery that federal tax rates remain at the same rate or lowered if possible.

The Bush tax cuts of 2001 and 2003 lowered the federal income tax rates on all brackets by 3-5 percentage points. It also lowered the capital gains tax from 10% to 8%, lowered the estate tax, gift tax, and tax on dividends. These cuts benefit middle and upper income earners but also directly benefits small businesses. Small businesses create two-thirds of all new jobs. Many small businesses file as individuals, exposing them to the higher federal income tax rates.

The cuts to capital gains and dividends also make investing more profitable. One of the key obstacles to the economic recovery has been the lack of capital being invested in new enterprises. Raising taxes on capital gains and dividends will only slow investment further.

President Obama and Democrats have consistently stated the Bush tax cuts favor the rich and do nothing for lower and middle income Americans. In terms of the income tax, they are correct but only because almost half the country does not pay income taxes. Unfortunately, the government cannot cut taxes on individuals and families that currently pay zero income taxes.

The only direct federal tax on lower income Americans is the FICA payroll tax taken out of their paycheck. The payroll tax is usually the largest tax liability for Americans, not the income tax.

Some Republicans have proposed temporarily cutting or suspending the payroll tax to encourage hiring. However, Democrats do not appear to embrace this idea.

Democrats seem to argue that the government can collect more taxes from rich people with no economic cost because they can afford it. Once more, they need it to pay off the countrys huge bills – bills that the Democratic leadership has run up to historic sums. Unfortunately, taxing the rich cant be done without consequences to the rest of the country.

Many small businesses file as individuals and pay the top income tax rates. If businesses need to pay higher taxes, they will pay lower wages or lay off workers. If investors pay higher taxes, they will invest less and find creative ways to avoid the higher tax liability, none of which will create jobs. It doesnt matter where the government collects the taxes from, it will slow down economic activity, lower growth, and cost jobs.

According to the Heritage Foundation, the Obama tax hikes could cost 200,000 jobs in 2011 alone and could cost an average 799,000 jobs per year from 2013 to 2019. In addition to job losses, there will also be fewer new jobs created. The loss in economic activity could decrease job creation by as much as 238,000 in 2011. Business investment would fall every year over the next 10 years by an average $33 billion. They also project GDP growth to fall by $1.1 trillion between 2011 and 2020.

For the millions currently unemployed, raising taxes will make things much worse.

For Young Americans, the Obama tax hikes will harm us severely. Young Americans need the economy to create new jobs and need greater investment in small businesses to create those jobs. The Obama tax hikes will slow job creation and investment, which will lead to extremely high unemployment among Young Americans for years to come.

The argument that we need to allow the Bush tax cuts to expire in order to reduce the deficit is utterly ridiculous. According to the Economist, raising taxes on the top 2% of households, as Mr. Obama proposes, would bring in $34 billion next year: enough to cover nine days worth of the deficit. Raising taxes as President Obama proposes will not balance the budget and it will only put a minor dent in the deficit. Government spending is projected to explode from the historical average of 21% of GDP to 26.5% by 2020.

Even if the Bush tax cuts expire and the government takes in a windfall, it will still be well short of balancing the budget. Clearly, there remains a massive gap and it is not on the revenue side.

It is also important to point out that capital gains and dividend taxes are an extremely small percentage of the total tax revenue collected by the federal government. Since its fiscal impact is negligible, one has to ask why we tax these things at all. They do more harm than good.

The benefits of extending the Bush tax rates or making them permanent are undeniable. It will result in more business investment, more disposable income, and more job creation. The federal deficit can only be addressed with spending cuts, not tax increases. Finally, Young Americans must realize that a large tax on the economy will impact them, even if it is not taken directly out of their paycheck. One way or another, higher taxes affect every American.

There are a number of alternative proposals to simply keeping the current Bush tax rates in place. These proposals include adopting a flat income tax or replacing all current taxes with a single consumption tax (a sales tax). These proposals have merit and it is beneficial to have honest discussions comparing them to the current system. Young Americans must be made aware that there are other ways for the government to collect revenue and many of them are not nearly as painful as the current monstrosity that is the U.S. tax code. It is a problem politicians have ignored for a long time. Extending the Bush tax cuts is a good policy but it should not stop the discussion on reforming the tax code. Simply carrying on the existing flawed system is not acceptable over the long run.

About the Author: J. Wesley Fox is the Chairman of Restore America’s Legacy PAC. He is a recent graduate of DePaul University College of Law and has been active in local and national politics for several years. He currently lives in New Jersey after growing up in the Chicago

restoreamericaslegacy.com

Source:

isnare.com

Permanent Link:

isnare.com/?aid=632005&ca=Politics}