Extending Bush Era Tax Cuts Will Aid the Economic Recovery

One of the more spirited public policy debates that hasunfolded leading into the midterm elections has been what Congress should do with the Bush-era tax cuts,which are set to expire at the end of this year.  President Obama has stated he favors only extending tax cuts for the middle class and letting others expire, while businesses, Republicans, moderate Democrats, and taxpayer advocates maintain that anything other than a full extensionamounts to a tax increase that will only prolong the nation’s current economic woes. 

What is certain is that ifthere is no congressional action, taxes for everybody will go up.  According toCNN Money, “The Tax Policy Center estimates that a married couple with two kids under 13 and a household income of roughly $75,000 could end up paying about $2,600 more in federal income taxes next year than they would if the tax cuts were extended.” 

The spirited debate that has transpired in Washington, D.C.has a chorus of those on the left and right calling for a two-year, or even permanent extension of all tax cuts.  Even President Obama’s former Office of Management and Budget Director Peter Orszaghas broken with the President.  Orszag does not favor making them permanent, but he opined in the September 6,2010New York Times that allowing any of the Bush tax cuts to expire now would “make an already stagnating jobs market worse over the next year or two, which is exactly what would happen if the cuts expire as planned.”

Even moderate Democrats like Sen. Ben Nelson (D-Neb.) have come out in favor of extending all of the tax cuts,saying, “I support extending all of the expiring tax cuts until Nebraska’s and the nation’s economy is in better shape, and perhaps longer, because raising taxes in a weak economy could impair recovery.”

ASeptember 13, 2010 article in The Christian Science Monitorlisted the consequences for tax rates of failing to act:

• The 10, 25, 28, 33, and 35 percent rates would all rise. The new tax rates would be 15, 28, 31, 36, and 39.6 percent.
• The indexing of the alternative minimum tax (AMT) for inflation would end. The AMT, which provides $66 billion in annual relief for taxpayers, attempts to ensure that individuals who benefit from itemized deductions or credits pay a separately calculated minimum tax.
• Taxes on capital gains and dividends would rise, meaning that investors could potentially pay about $35 billion more.
• Married couples would go back to paying higher rates than today, at a cost to them of $32 billion per year.
• Expanded tax credits—such as the child tax credit, which went from $500 to $1,000—would end. This would cost families $26 billion per year. Some taxpayers would also pay an additional cumulative $1.5 billion in education costs.
• The estate tax, which has already expired, would go back to its 2009 level, costing heirs at least $26 billion.

Those opposed to extending the tax cuts have yet tocome up with a good reasonwhy any tax increases are warranted.  According to a September 23, 2010 FOXBusinessarticle, 313 economists signed a letter to Congress organized by the National Taxpayers Union(NTU), including a Nobel Laureate, who think that letting the Bush cuts expire “would constitute a profound and damaging anti-stimulus that would harm our prospects for expansion in the near future.”Extension of all the Bush-era tax cuts seems like the only option that will grow the economy, so Congress should not delay in making this the top priority of the lame duck session that begins on November 15, 2010. 

  — MacMillin Slobodien