Naive And Wishful Thinking To Expiring Tax Cuts

Saturday, July 7, 2012, AM | Leave Comment

The Bush Administration tax cuts are to expire by the end of the year. If Congress don’t do anything and let the tax cuts expire, it would mean the old tax rates would be back.

That in essence will be like having new taxes which in this still bad economy will amount to another burden on the financial shoulders of the American workers.

In addition to bringing the old taxes back, spending cuts would automatically take effect if Congress didn’t do “nothing.”

The three culprits or benefits…

If all these – expiring tax cuts, new taxes and spending cuts – happen all at the same time, many experts agree the economy would experience a significant slowdown.

There would be major consequences for financial markets. So what else is new in this rotten financial world?

Current lower tax rates on capital gains, dividends, income, and estates, as well as number of other measures will expire as well.

If Congress don’t Act…

However, if Congress didn’t do anything, many experts agree such policies – the tax increase and spending cuts – would reduce the budget deficit and begin to address the nation’s increasingly worrisome debt situation.

It would be a step forward in reducing budget deficit but taxpayers will pay taxes at higher rate.

There would be less reason for the President to ask Congress to raise the Federal debt ceiling.

Many experts agree the automatic spending cuts and tax hikes would cut as much as 4%-5% of GDP. That would be enough to throw the economy back into recession especially when the Feds recently revised the economic growth and lowered it to around 2%.

If Congress extends present lower tax rates…

In order to make up for less money from the American taxpayers, the President might ask Congress to raise the debt ceiling.

Compromise…

This is as good a time as any Congress overhauls the tax system that could actually make the U.S. economy more productive and broaden its base.

What if Congress does not extend the lower tax rate as is but implement a new lower tax rate not as low as the previous one but low enough to still give a boost to the economy.

The same goes for spending cuts; not as much as that will automatically be in effect but still enough to play a part in reduction of the Federal budget deficit.

In a Nutshell
As long the President and Congress are flexible enough to listen to one another – an impossible task to say the least, a compromise can be reached to benefit the common man and woman.

Common man and common woman have been kept out of the economic equation since way back when. It’s time to bring them back in.

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