September 13 2010

The Big Question: Should the GOP Back Middle-Class Tax Cuts?

Politically, it makes sense for Republicans to support a bill that would maintain lower taxes for those in lower income brackets, even if that legislation also phases out tax cuts on high earners. If the choice is between all Americans being hit by a tax increase, or just some Americans being hit by a tax increase, better to spare as many as possible. ?

?Yet policy-wise, it's still a mistake to raise taxes on anyone - even "the rich" or those in the highest income tax brackets, which includes many small businesses. As I've written before, the effects of higher taxes on this group won't just lower the income of well-off individuals, but will have effects that ripple through the economy, slowing growth and deterring job creation across the board.? ?While Republicans may move ahead with allowing some tax cuts to expire, they shouldn't give up rhetorically on making the case that it's the federal government's spending problem - not a revenue problem - which drives our deficits and long-term debt. Revenue increased from $2.0 trillion in 2000 to $2.5 billion in 2008, at the end of the Bush Administration; the problem is that during the same time spending swelled from $1.8 trillion to nearly $3.0 trillion.

Yes, our receipts fell some since the start of the financial crisis (while spending skyrocketed) but greater economic growth - not higher tax rates - are what's needed to drive those receipts back up. Tax increases on anyone take more from our already pinched private sector - that's not going to encourage economic growth and is the wrong direction for our economy. 

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