There has been a lot of talk recently about extending the tax cuts instated by Bush temporarily and set to expire at the end of December 2010. If congress did nothing, the tax cuts would expire and every tax-paying American would see an increase in their withholdings come January 1. Up until the past few days, there was very little knowledge about where taxes would stand on Jan 1, which in my opinion is completely unacceptable. Individuals and businesses deserve to know what they will be facing in terms of taxes long before they have to start paying them.
That being said, there are many different schools of thoughts on this. Conservatives want to keep the tax cuts for everyone. They think that raising taxes on anyone in the midst of a recession, or recovery from a recession, will stifle economic growth and inihibit a recovery in employment. There is valid concern there. The United States is a consumer-driven economy. We rely completely on purchases and investments for our economic health. If you take more money out of peoples' and businesses' pockets, the less they can spend/invest.
The other argument among conservatives is trickle down economics. They didn't want th expiration of the tax cuts on just the top tier of income earners because it is their belief that it is those making over $250k that provide the jobs to most Americans. Americans rely on small business a lot for employment, and many small businesses fall just over that $250k threshold. The theory is that those small businesses will be deincentivized to hire, and thus it will stifle job growth. This is known as the trickle down myth and I have yet to see really convincing evidence that it ever actually works.
Among the more liberal points of view is that the tax cuts should expire for those making over $250k, but should remain for those making under that mark. Their rationale is that the "rich" can afford it, and that NOT allowing these tax cuts to expire will only "cost" the country more and add to the deficeit. Also a valid concern, and I completely empathize with that point of view. They are also disbelievers in trickle down economics and (generally) believe that the top income earners are greedy SOBs who want to do nothing other than pocket their profits (vs. investing in human capital, etc).
Here is where I stand on this issue. I really have no inner turmoil about the tax cuts expiring for the top income earners. I do think they *can* afford it, and as I mentioned above, haven't seen any concrete evidence that trickle down economics helps during tough economic times. However, I am a true libertarian and believe the least amount of taxation as possible to get by is sufficient. I think that raising taxes on ANYONE in this economy cannot possibly be a good thing. I also believe that $250k is not anywhere close to "rich" and if they wanted to go that route they should raise that threshold to $750k or $1m. There'd still be plenty of people to tax.
President Obama compromised on this yesterday. The proposal is for the tax cuts to be extended for everyone for another 2 years. In exchange the congressional Republicans would have to accept an extension of unemployment benefits for 1 year. The liberals I know are very unhappy with the compromise. I haven't yet heard much from the conservatives. In a way, I'm glad Obama compromised because it shows his ability for team work and not trying to steamroll people. But I wish he compromised in letting the tax cuts expire for anyone making over $1m instead. That way the U.S. would generate more tax revenue to put towards the deficeit and yet still protect the most vulnerable businsses among us.
There is still a lot of negotiating to do and Congress has until 12/31 to figure it out. I hope it is much sooner than that!
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