Please do not let the Bush tax cuts expire

By: ispeculatornew
Date posted: 08.06.2010 (4:00 am) | Write a Comment  (8 Comments)

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It might already be too late as the Obama administration seems determined to let them expire for many of the recipients but I am still ready to pick a side here, arguing that the Bush tax cuts should be left intact for the time being. It might not be the popular position and I would not be presumptuous enough to declare that I hold the ultimate truth but I think it’s worth having the debate. I simply fear that we’ll make a mistake for the wrong reasons if we let these expire without having a debate about the substance instead of a debate about everything else. This is not a pro-Bush post, or an anti-Bush post, simply a post about the tax cuts themselves.

The easier stance

In my opinion, one of the main reasons why these tax cuts are being opposed by the democrats (although not all of them) and the Obama administration is because it is a much easier argument to make. The fact is that a large portion of the population is upset at powerful corporations, banks and individuals because they have suffered significantly less during this economic downturn. That makes it very popular to tax the wealthy, attack and put much of the blame on these institutions and individuals. They certainly have their fair share of the blame in my opinion but it’s about much more than greedy individuals. The government for example let these institutions push things further and further for years without doing anything. Increasing taxes on the wealthy will always make a good and popular argument but does that always make it right? I’m growing tired of these easy attacks.

The wealthy and most successful corporations & individual are not all bad…

1-they pay almost all of the taxes paid to the US government (top 10% pay 68% of total taxes)
2-are responsible for most of the productivity gains through investments

They are certainly not perfect, but let’s not blame all of our problems on them either. It’s easier to convince the population that a tax increase will help reduce budget deficits and that is true to a certain degree but reading articles like this one gives us a more complete answer to what effects these tax cuts had.

It’s not always about who is President

I hate hearing arguments about how Bush had net job losses and how Obama isn’t delivering because unemployment is at 9.5%. The fact is that a President and a government has limited power over the economy, Much more powerful forces are at work like economic cycles. Western economies have gone through these cycles for over a century now and it’s not always in the power of the man in charge to help us avoid the next recession. Looking at economic results during a Presidential term is certainly a useful exercise but I think it’s important to look at the context as well. Arguing that the Bush tax cuts did not work because there was not net job creation during his time as President is a simplistic way of analyzing the debate in my opinion. It should be about the impact of these specific tax cuts.

Tax cuts encourage investment

I don’t know how anyone could argue this. It is probably even more true in the “wealthy Americans” such as those small companies. A company with revenues of 300,000$ is much more likely to invest capital if it gets a tax break, that is a fact. I think it’s important to look at what the consequences would be

Deal with the deficit now, but major steps should take place after the recovery

It is basic economics. An economy that is battling recession needs stimulus, not cuts or taxes. The deficit is very important to deal with and I believe very much in the Clinton discipline in getting those deficits back in control to ensure the long term prosperity of this country. That being said, it is known that during a recession, an economy should be stimulated, not the contrary. The problem regarding the deficit was that even during the good economic times while George Bush Jr was President, the government was still running deficits, mainly because of wars being waged in Iraq and Afghanistan. Let’s start looking at how the deficit will be reined in but for now, the priority should be economic recovery.

Solution

I’m not saying that these tax cuts should remain in the long term, but simply that in the short term, the timing and reasons behind these tax hikes are not right and these should be carefully looked at, and if they are going to let these tax cuts expire, it should be done when the economy is strong and should be done over a few years to diminish the impact.

All of that being said, I don’t pretend to hold the truth and this is only an opinion, I would love to hear yours on the subject as well.

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8 Comments

  1. Comment by John — August 6, 2010 @ 8:14 am

    Yes yes, I agree with you. I prefer to extend the tax cut until the economy is still fragile. Although, I do not think that that those tax cuts should remain long term. What I am mostly worried is the US growing deficit… Good post!

  2. Comment by IS — August 9, 2010 @ 7:11 pm

    @John – Glad to have one person agree with me:)

  3. Comment by John — August 11, 2010 @ 6:53 am

    There is an article on the Bloomberg Business Week relating that the consequences of expiring the tax cuts 😉

  4. Comment by IS — August 11, 2010 @ 5:38 pm

    @John – thanks! Went through the article today and it was quite conplete

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