10.31.2010 0

Did Congress Learn its Lesson?

  • On: 11/03/2010 09:38:27
  • In: Taxes
  • By Rebekah Rast

    The elections are over. No more ads on television, no more campaign signs and no more computerized phone calls.

    A new Congress will convene in January with the heavy task of bettering the country, but for now, all is at rest in Washington, D.C., right? Wrong.

    November 15th marks day one of the lame-duck session. Yes, all those members who lost their seats and who are retiring will be back, voting on big-issue items that could either further damage or begin to heal America.

    One of those big-issue items is the 2001 and 2003 tax cuts. Rumors have been flying as to what will happen to these tax cuts in the lame-duck session, but one thing that is known is what Obama would like to see. He would like all the tax cuts extended for those who make less than $200,000 a year and married couples who file jointly and make less than $250,000 a year. On the flip side, those making more than $200,000 a year and married couples making more than $250,000 a year would see an increase in their federal income tax rates from 35 percent to 39.6 percent.

    For those who think taxing the rich at a higher rate is okay because they have more money than they can spend anyway, remember that most small business owners fall into this category and small businesses employ about half of all U.S. workers. With an unemployment rate hovering around 10 percent for the past 17 months, increasing taxes on the very source that could provide more Americans with jobs is not wise.

    “Letting the tax cuts expire on the wealthy nails small businesses,” says Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council (SBE Council).

    Not only would Obama’s plan hurt small businesses, but it could also be seen as punishment to those with more money.

    “If the upper rate is taxed higher, it is a punishment for saving and investing,” says Bill Thomas, former Chairman of the House Ways and Means Committee, the tax-writing committee of the House of Representatives. “This is probably not a good policy to invest in. Letting these tax cuts expire is not a smart thing to do.”

    What would be smart? Bill Wilson, president of Americans for Limited Government (ALG), says that if this lame-duck session of Congress isn’t willing to make permanent the 2001 and 2003 tax cuts, then they should be extended for at least a year so the new Congress has a chance, “to do what is right, and make them permanent.”

    Also key components of the 2001 and 2003 tax cuts are the capital gains and dividend tax rates scheduled to increase unless something is done in the lame-duck session. Obama would like to see these taxes increase as well, from 15 percent to 20 percent. The damage of his plan?

    “Raising the tax rate on capital gains will undermine growth,” says Cato Institute’s Dan Mitchell, Ph.D. “Some small businesses will be hit hard, but the main negative effect is broader, since a capital gains tax discourages both the amount of investment and the efficiency of investment.” Mitchell even goes a step further to say, “The capital gains tax should be abolished since it is a destructive form of double taxation that applies if people save and invest.”

    J.D. Foster, a Norman B. Ture Senior Fellow in the Economics of Fiscal Policy at The Heritage Foundation, agrees that raising these taxes can discourage investment and saving. “The higher tax rates will reduce the amount of investment by U.S. businesses at home and abroad, and will reduce their ability to compete at home and abroad.”

    Clearly, Obama’s plan for the 2001 and 2003 tax cuts would not be helpful for America’s need to grow at this time. A simple glance at President Ronald Reagan’s tax cuts in the 1980’s proves this point.

    Mitchell’s research of President Reagan’s tax cuts shows that after sweeping tax rate reductions in the 1980’s, total tax revenues climbed by 99.4 percent. The article goes onto point out, that “Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).”

    The late Former Representative Jack Kemp (R-NY), one of the chief architects of the Reagan tax cuts and the 1996 Republican vice-presidential candidate, was not surprised at these results. He was quoted as saying, “At some point, additional taxes so discourage the activity being taxed, such as working or investing, that they yield less revenue rather than more. There are, after all, two rates that yield the same amount of revenue: high tax rates on low production, or low rates on high production.”

    Obama’s agenda will tax the wealthy at a high rate when production in America is at one of its lowest rates.

    This is a huge issue for Congress during this lame-duck session. If Obama’s plans are adopted the American people can expect an even more prolonged recession. If the 111th Congress learned anything during this year’s elections, then they’d be wise to thoroughly evaluate the 2001 and 2003 tax cuts and not simply adopt Obama’s agenda without a passing thought.

    America is trusting that this Congress learned its lesson and that raising taxes on Americans is not a cure-all for its irrational spending habits.

    As President Ronald Reagan said on March 28, 1982 in his Address to National Association of Realtors: “We don’t have a trillion-dollar debt because we haven’t taxed enough; we have a trillion-dollar debt because we spend too much.”

    This statement rings true for a $13.6 trillion debt as well.

    Rebekah Rast is a contributing editor to the Americans for Limited Government (ALG) News Bureau.


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