Apologies for being late this week.
In this week's blog, I will be answering Larry Welsh's question about the Bush Tax Cuts.
Larry asked, "GOP leaders, led by Mitt Romney, oppose the compromise deal to temporarily extend the Bush tax cuts for all but the richest. Some Democratic Senators are now saying they won't back down, and will allow the Bush Tax cuts to expire for everybody if the Republicans refuse to compromise. Now, are you the kind of Conservative who thinks that is a good idea?"
First I have to write about what "compromise" is.
Compromise is "a settlement of differences by mutual concessions; an agreement reached by adjustment of conflicting or opposing claims, principles, etc., by reciprocal modification of demands."
Having either (or both) side(s) saying, "Do it like this or nothing" is not a compromise. What it really is, is an election-time ploy with one side playing the "Class Warfare" card.
Secondly, what about the "Bush Tax Cuts" themselves?
To start out, I want to talk about who would actually be most affected if these tax cuts were to expire.
There are many types of businesses. Most small businesses fall under either Sole Proprietor or Type-S Corporations. Those businesses are too small to file under normal corporate taxes, and file their profits under normal income tax rules.
From this citation...
"Fully 99 percent of all independent enterprises in the country employ fewer than 500 people. These small enterprises account for 52 percent of all U.S. workers, according to the U.S. Small Business Administration (SBA). Some 19.6 million Americans work for companies employing fewer than 20 workers, 18.4 million work for firms employing between 20 and 99 workers, and 14.6 million work for firms with 100 to 499 workers. By contrast, 47.7 million Americans work for firms with 500 or more employees."
By letting the Bush tax cuts lapse (or by letting the over-$250k cuts lapse), we would in effect, be raising taxes on those that directly employ 52.6 million Americans. So who would be most affected? Those 52.6 million people.
If we combine that with the penalties, fees, and taxes added by the PPACA (Obamacare) that will soon be enforced... well, you don't have to think too hard to understand the effect it's going to have on employment in this country. And with an already constant 8.2 percent unemployment rate (though actual unemployment is higher than 20 percent), we can expect that to get much worse.
We seemed to hit our sweet spot under Reagan in the 80s. Then, like now (with the Bush tax cuts in place), the lowest tax bracket had a rate of 10 percent. However, the taxes on those small businesses and others that fell into the top bracket was 28 percent under Reagan, but is 35 percent with the Bush tax cuts in place. Citation
If the Bush tax cuts expire, those rates would revert to the 2001 tax rates of 15 percent for the low bracket and 39.6 percent for those small business owners.
The growth in our economy during the 80s once that tax policy was in effect was the longest sustained growth ever in peacetime. With a mean of around 6 percent. Once those tax rates rose, we soon experienced the same up and downs we had previously.
That being said, there are other influences on our economy than taxes. For instance, the "dot com" boom of the 90s gave our country a lot of growth, while it's bursting lead to a recession. Same with the housing market bubble for this current downturn. That's why I believe the tax rates of the 80s accurately reflect what effect taxes have on our economy, since it was absent both a boom and a burst and just reflected a stable economy running on all cylinders.
So my answer is that I am for keeping the Bush Tax Cuts for now, and as soon as humanely possible, we need to return to the Reagan Tax Cuts of the 1980s.