Congress' Effect on the Extension of the Bush-Era Tax Cuts

December 19, 2010
For over a decade, Congress has year after year voted in favor of tax decreases for American citizens. At the present time, the current Congress has to make the decision to continue to lower taxes or to increase taxes that target some of the most vulnerable taxpayers in the country. President Obama has proposed a new tax increase to those with higher incomes (above $250,000) and businesses, including small business owners. President Obama’s plan is to continue to extend the Bush tax cuts to those citizens allocating an income of less than $250,000 while letting them expire for those who are earning $250,000 or more. In a recent interview with Steve Kroft of “60 Minutes,” he said that those who will not be hit by the taxes are actually the ones who are more likely to spend and stimulate the economy. He said that he does not want to make it harder on those individuals who are making a positive contribution to the economy by taxing them, but instead, let the Bush tax cuts apply. For those who are earning the required income for said tax increases, he hopes to rely on their money instead of borrowing money that the government does not actually have to put his $700 billion stimulus package into action. The tax increases will help to allocate the money necessary to put back into the economy. His hope is to allocate enough funds without causing an even larger national deficit. But, as many studies and research shows, these tax increases will do nothing more than cause more problems in areas such as unemployment and economic growth. If Congress wants to expedite economic growth and get the United States back on its feet, they will continue the 14 year tax decrease and disapprove President Obama's tax-increase plan.
Advantages and Disadvantages to the Tax Increase
The proposed tax increase plan expresses President Obama’s intention to deviate from historical tax cuts. The effects of Congress’ vote in his favor will spread across many areas and come with many disadvantages. President Obama’s tax increase would eliminate thousands of jobs every year because of slower economic growth; in fact, employment would fall by an average of 693, 000 jobs per year. This job elimination would also make the unemployment rate jump, quicker than it would without the tax increases. Those who are unemployed before the taxation comes into play will have even less of a chance to get a job when they do. In terms of how the economy would fare under President Obama’s increases, the disadvantages are even more numerous. Researchers claim that because of the 2011-2020 $1.1 trillion GDP reduction caused by President Obama’s tax increases, business investment would fall every year by an average of $33 billion comparative to what it would if the tax increases were not passed. Investment in residences would also fall by a substantial $13 billion per year, and personal savings of Americans would also suffer large decreases to the tune of $38 billion in 2011 alone and would continue this pattern for another four years. The economic effects would be many and have a significantly negative effect on Americans. Economic growth would no doubt be slowed. Obama’s tax increases will not only produce tangible disadvantages, but also a decline in entrepreneurship. Researchers claim that the installation of tax increases would discourage Americans from pursuing business in the form of startup companies, and that this will in turn slow economic growth because these are the same companies that provide jobs. Startup companies will be fewer and fewer because of the increased tax rate that will decrease the amount of capital necessary for their primary years. Because businesses use capital to hire workers, if the cost of capital rises, businesses will ask for less of it, and in the end, there will be fewer jobs available. Additionally, startups will lose investors in the form of family and friends. With higher tax rates, resources like funding would be eliminated. If entrepreneurs know their startup has no chance because of a tax increase, they will not take the first steps to form one. The effect on those small businesses that are formed are also negative for not only them, but for the American people. These small business owners are the ones who are providing the majority of jobs in the country right now. By default, those who are currently unemployed or become unemployed once the tax increases are launched will be negatively affected because small businesses will no longer have ample resources to create as many jobs, therefore digging the unemployment ditch even deeper. The American people are currently facing the worst recession since the Great Depression and while jobs are scarce, these small businesses have the opportunity to create jobs, but with new taxing, this opportunity may be eliminated. President Obama argues that the increases will not harm all small businesses because many of them do not allocate enough funds to meet the income requirement. He claims that these job opportunities will still be saved. On the other hand of his argument, there is a large group of small businesses that will be affected by these increases. These small businesses, the “bigger” ones, do have employees; they meet the income requirements for taxation, and they earn most of the money for the small business sector in America. These are the businesses that will be affected, the ones that provide goods for the American people, jobs included.
On the other side of these disadvantages, there are some advantages to President Obama’s plan. President Obama says he wants the deficit reduction to start in 2012 to ensure that this recovery year (2011) is not disrupted; he says he feels that in approaching this, he wants to implement his plan gradually as to not damage the already fragile recovery. He also says that his tax reform aims to simplify tax codes by decreasing income tax rates and repealing tax cuts. President Obama also made a point to say that the purpose of these increases is to raise money and to get the country out of the deficit; he hopes to raise $1 trillion over a 10 year period. Additionally, supporters of these new tax increases have spoken on behalf of its advantages. In a recent interview on “Meet the Press,” Democratic Senator Richard Durbin of Illinois commented that “we should not be worried about the discomfort of the wealthy” who will be the ones affected by these new taxes, but rather “that there are many people struggling to survive everyday without a job” and that these new taxes could serve as a resolution to this problem. Senator Durbin went on to say that “we need to get the economy moving” and he expressed his feelings of the tax implementations doing just that. Proponents also say that the need for revenue generation outweighs the adverse effects of the tax increases; they concluded that new revenue (taxes) is necessary to the financial plan to eventually balance the federal budget. President Obama and his supporters also say that his tax increases will not hurt small businesses because only 2% of small businesses pay income taxes at the highest rate. What’s more, the Obama Administration says implementing the tax increases would bring more than $678 billion in government revenue through 2020. The claims presented by President Obama and his supporters boast favorable outcomes from the tax increase and are appealing to many.
Bush-era Tax Cuts: What extending them would look like for America

If President Obama were to extend the Bush-era tax cuts, the economic standing of the nation would in fact be better. The hopes he has for the tax increases would be a reality if Congress voted to extend the Bush tax cuts and avoided taxing all together. Between 2011 and 2016, the GDP would raise by an average of over $75 billion each year, yielding $100 billion by 2012. In addition, an average of 709, 000 jobs would be created each year, and average 900,000 by 2012; this large amount of job availability would lower the unemployment rate and by 2012 at least 270,000 individuals would find jobs by 2012. While the Obama tax increases would do a lot of harm to the nation, if the Bush-era tax cuts were made permanent, these negative effects would be eliminated. Tax decreases also encourage harder working individuals, more investing, and an increased labor supply. If Congress chose to continue to extend these cuts to all, it would benefit all and faster too. President Obama would not have to raise taxes and could still raise revenue to get the nation out of the deficit.

What President Obama presents as “gradual” is quite the opposite. If his tax increases are passed, immediate and long term changes will do substantial damage in 2011 and in years to follow. If the new tax increases are put into action, critical job creation would be sacrificed. The current unemployment rate would increase even more because small businesses would lose the monetary resources needed to continue to create jobs. While President Obama argues many advantages, like the fact that the increases will not affect the majority of taxpayers, his claims have been disproved by the significant negative effects— 8% of small businesses pay taxes at the two highest rates, and that same 8% accounts for 72% of all small business revenue, and that 72% pays 82% percent of all small business taxes—in both the short and long term on the economic situations of many Americans. And, President Obama’s emphasis on the Bush-era tax cuts extending to those who make less than $250,000, though seemingly attractive to many Americans, does not count as a tax break. In order to successfully get the American people out of the current recession and the enormous deficit, the President should make the correct moves in order to make this happen as quickly as possible. In addition, Congress needs to decide if the tax increases will prove effective and gross the projected revenue necessary to get the nation out of the current deficit while continuing to promote economic growth by ensuring small businesses stay afloat and continue to create jobs by voting against the tax increases, and propose that the Bush-era tax cuts are not only extended, but extended to everyone.

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