Bush tax cuts, the deficit, financial growth and the Obama strategy

As originally scheduled when they were enacted, the Bush tax reductions expire around the end of the year. For the so-called rich who make more than $200,000 a year, the Bush tax cuts continue, when the so-called middle class gets to keep them under Obama’s scenario. Democrats hurting America by raising taxes during a recession is a key Republican talking point. Obama claims he cannot reduce the deficit and offer tax breaks for the wealthy. Whether or not extending the Bush tax cuts for everybody or just the middle class will spur growth or reduce the deficit is a moot point to some experts, who do not consider either approach a solution. For the moment it does not matter. Politicians have temporarily tabled the issue. Democrats who say they support the Obama tax plan are too afraid to vote on it before the November elections, lest they be crucified at the polls for raising taxes.

Obama’s tax plan underneath the hood

It’s possible that discontinuing the Bush tax cuts for the affluent won’t hurt them as much as the GOP contends. Some of the information were made evident by Bob Williams writing for the Christian Science Monitor. For one thing, the 28 percent bracket would cover a wider range of income. This was proposed to prevent those making less than $200,000 from getting a higher tax bill. That provision could result in a lower tax bill for even a few of the more affluent taxpayers. The extended bracket also decreases the likelihood that taxpayers just clearing the $200,000 level would get hit. According to a study by the Tax Policy Center, Obama’s proposal to rescind the Bush tax cuts for the rich will increase rates for just 1.7 percent of working class individuals. Ordinary income has nothing to do with higher taxes for the rich. Williams writes that they’re concerned with income most Americans are unfamiliar with. The large hit for the rich is a boost in ! the tax on capital gains and dividends to 20 percent, from 15 percent. If the Democrats call the Republican bluff and also the Bush tax reductions go away, the wealthy will end up paying a top rate of 39.6 percent on dividends.

Are tax reductions a realistic strategy?

Tax cuts of any kind aren’t the way to solve the economy’s troubles, according to Diane Lim Rogers writing on CNN . Tax plans from both parties, she contends, commit the United States of America to a future of shrinking government revenues, less saving and long-term economic malaise. While Obama says raising taxes on the wealthy will conserve $700 billion over 10 years, the savings is just a fraction of the $2.2 trillion cost (not including interest) of stretching the Bush tax cuts for everybody else. Lim Rogers writes that deficit-financed fiscal policies (read economic stimulus) have a bigger bang for the buck in terms of boosting demand for goods and services and creating jobs. She also discounts the temporary nature of the tax cut strategy. A long-term approach is necessary to truly reduce the deficit. This is since the U.S. government cannot be trusted to let expiring tax reductions expire–as it is proving now.

Find more info on this subject

CS Monitor

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CNN

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