What does this all cost us? The cost of making the cuts permanent for all Americans as estimated by the US Treasury at 3.7 Trillion dollars over the next ten years. This is a hefty price to pay considering the political wrangling over deficit spending and its continuing negative effect that deficit spending has on the economy. What seems more likely is that some scaled down version will be extended and those figures vary from 300 – 500 billion depending on what cuts are allowed to continue and for how long.
There seems to be growing bipartisan support for extending the cuts for poor and the middle class. The debate seems to be centered on extending them for the wealthiest of Americans. Most Democrats oppose tax cuts for the wealthy including the Obama administration. Many Republicans and Tea Party candidates support the continued relief for the wealthy claiming a failure to do so would hurt small business and hurt job growth. The left claims that the wealthy don’t need the money. Many Republicans do admit that they would not hold up extensions for the poor and working class just to extend them for the wealthy. The Tea Party seems to be the wild card in the debate with some not wishing to stray from the hard right position.
So let’s take a look at some of these arguments in further detail. The one that strikes me the most is that the wealthy don’t need the money. Seems vague and for me, it needs some sustenance before I agree so I did some research. According to the Christian Science Monitor to qualify as one of the top one percent of wage earners in America you must earn $600,000 annually. Currently approximately 120,000 Americans fall into this category and earn on average an astonishing $8.637 million each year. These Americans account for less than .04% of the population but garner an unbelievable $1,036,440,000,000. That’s 1.03 trillion annually. Repealing the bush tax cut for these individuals would result in a tax increase on average for these individuals of approximately $310,140. A lot of money to most of us but for these households not much would change if anything.
Raising taxes on the wealthy will hurt small business. This seems to be the battle cry behind many of the supporters of extending the cuts for the wealthy. Sen. Orrin Hatch (R-Utah) stated recently, that allowing the cuts to expire would amount to "a job-killing tax hike on small business during tough economic times." This claim is nothing if not misleading. A report in the Washington Post cited that less than two percent of tax returns of individuals in the top two tax brackets even report income from small business. An expiration of cuts for the top two tax brackets would leave 98% small business virtually unaffected and have no bearing on job creation. Many believe that the money would be better off spent helping the states recover by extending unemployment insurance benefits and tax credits favoring job creation.
Ultimately as I see it the tax cuts are like a fiscal band-aid. Though they might help in the short term they must eventually be paid for. The economic recovery is slower than most would like so a short extension of some of the cuts might help, but in the long term as we try to pull ourselves out of this financial crisis, we need the tax revenue to help end all this deficit spending that leads to higher interest rates and hurts long term growth.
What I would propose is a phase out of the cuts over time. I would suggest immediately starting with the top income brackets and working downward over time and phasing out all the cuts over the next few years. As we try to reverse the trend of deficit spending and putting our country back on the path to fiscal responsibility we must realize that we can’t have our cake and eat it too. We must strive to end our live today, pay tomorrow attitude and understand that we must pay for these cuts eventually and the longer it goes the higher the bill will be.
Sources
Bush tax cuts 101: What changes could be in store for taxpayers?
By Ron Scherer, September 13, 2010, CSMonitor.com, accessed 10/21/10
Five myths about the Bush tax cuts, William G. Gale, Sunday, August 1, 2010, Washington Post.com, accessed 10/21/10
Bush tax cuts: What you need to know, Jeanne Sahadi, September 15, 2010, CNN Money.com, accessed 10/21/10
"Better off spent helping the states recover by extending unemployment insurance benefits."
ReplyDeleteThis statement is everything that is wrong with this country. Instead of having the mindset, "What can we do to encourage job growth," democrats have the mindset, "We need to tax the crap out of the people with jobs, so the people over hear can be sustained." The problem with the economy is the government. Over 40-60% of the middleclass's income goes to state and federal taxes (This means we spend almost half of our lives supporting government!!!). The government survived without federal income taxes, until 1913! Instead of raising taxes, how about eliminating payroll taxes and income taxes, cutting corporate taxes, and reducing the size of the federal government and its excessive programs. We need to stop providing welfare to the world (Do some research on how much money actually goes back into American pockets!). To summarize: reduce taxes and the fed, stop relying on a faulty government to fix everything, stop voting democrat, stop voting for 98% of the republican democrats, and vote third party.