December 6 2010

Progress Better Than Politics on Taxes

Carrie L. Lukas

The tentative agreement on taxes that is reportedly emerging from Congress and the White House seems like welcome news for those who are concerned about the economy and the potential effects of letting tax cuts expire at the end of this month.

Let's be clear: this deal is far from perfect. Expanding employment benefits for more than another year will encourage many who could find lower paying jobs than they previously had from accepting new positions. This will not only keep the unemployment rate higher than it needs to be, it will also prevent people from gaining new skills and allow old skills to erode. The estate taxes is an inefficient and inherently unfair, unnecessary tax, which should be completely abolished (as Hadley recently wrote about here).

Yet surely it's better to make sure that existing tax rates are extended for two years rather than have them wallop the private sector in just a few weeks. Far better to have the death tax at 35 percent on estates over $5 million rather than hitting everything over a million at an outrageous 55 percent. It's critical not to raise taxes on capital gains and dividends since investment in the private sector is sorely needed.

It's a shame that the tax cuts--and particularly the unemployment benefit extension--aren't coupled with much needed spending cuts. But it's certainly a welcome moment that companies and businesses may finally know what their tax liabilities will be for 2011 (and 2012) and can begin to plan, and perhaps even to expand. All in all, considering where the county was a year ago, it seems like a good step in the right direction.

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