The 2001 and 2003 tax cuts are scheduled to expire at the end of this year, which means a big tax increase in 2011. Tax rates for all brackets will increase, the double tax on dividends will skyrocket from 15 percent to 39.6 percent, the child credit will shrink, the death tax will be reinstated (at 55 percent!), the marriage penalty will get worse, and the capital gains tax rate will jump to 20 percent. All of these provisions will be unwelcome news for taxpayers, but it’s important to look at direct and indirect costs. A smaller paycheck is an example of direct costs, but in some cases the indirect costs – such as slower economic growth – are even more important. This is why higher tax rates on entrepreneurs and investors are so misguided. For every dollar the government collects from policies targeting these people (such as higher capital gains and dividend taxes, a renewed death tax, and increases in the top tax rates), it’s likely that there will be significant collateral economic damage.
Unfortunately, the Obama Administration’s approach is to look at tax policy only through the prism of class warfare. This means that some tax cuts can be extended, but only if there is no direct benefit to anybody making more than $200,000 or $250,000 per year. The folks at the White House apparently don’t understand, however, that higher direct costs on the “rich” will translate into higher indirect costs on the rest of us. Higher tax rates on work, saving, investment, and entrepreneurship will slow economic growth. And, because of compounding, even small changes in the long-run growth rate can have a significant impact on living standards within one or two decades. This is one of the reasons why high-tax European welfare states have lost ground in recent decades compared to the United States.
When the economy slows down, that’s not good news for upper-income taxpayers. But it’s also bad news for the rest of us – and it can create genuine hardship for those on the lower rungs of the economic ladder. The White House may be playing smart politics. As this blurb from the Washington Post indicates, the President seems to think that he can get away with blaming the recession on tax cuts that took place five years before the downturn began. But for those of us who care about prosperity more than politics, what really matters is that the economy is soon going to be hit with higher tax rates on productive behavior. It’s unclear whether that’s good for the President’s poll numbers, but it’s definitely bad for America.
Treasury Secretary Timothy F. Geithner took the lead Sunday in continuing the Obama administration’s push for extending middle-class tax cuts while allowing similar cuts for the nation’s wealthiest individuals to expire in January. …The tax cuts, put in place between 2001 and 2003, have become an intensely political topic ahead of the congressional elections this fall. Republicans have argued that extending the full spectrum of tax cuts is essential to strengthening the sluggish economic recovery. Geithner rejected that notion, telling ABC’s “This Week” that letting tax cuts for the wealthiest expire would not hurt growth. …On Saturday, the president used part of his weekly address to chide House Minority Leader John A. Boehner (Ohio) and other Republicans who oppose the administration’s approach, saying the GOP was pushing “the same policies that led us into this recession.”
[…] is reduced. So if you’re driven by class-warfare animus, you may decide that you’re willing to hurt poor and middle-class people in order to prevent upper-income taxpayers from realizing a bigger share of the economy’s […]
[…] is reduced. So if you’re driven by class-warfare animus, you may decide that you’re willing to hurt poor and middle-class people in order to prevent upper-income taxpayers from realizing a bigger share of the economy’s […]
[…] And don’t forget that poor and middle-income taxpayers also will be hurt because slower growth is an inevitable consequence when tax rates climb and the burden of government spending […]
[…] And don’t forget that poor and middle-income taxpayers also will be hurt because slower growth is an inevitable consequence when tax rates climb and the burden of government […]
[…] And don’t forget that poor and middle-income taxpayers also will be hurt because slower growth is an inevitable consequence when tax rates climb and the burden of government spending […]
It is exactly these policies that have made Europe a continent with past, current and future long term growth prospects in the self-extinction range of 1.5% per year; IN SPITE of the fact that Europeans, as individuals are more competent than the average American.
Therefore, for the US, a fraction of the European Welfare state burden will be enough to set the US on a similar perpetually anemic 1-2% annual growth rate. If the rate of the current recovery is so weak, what will the steady state long-term growth rate for the US be?
Therefore – as I keep reminding as a broken record now – in a world that grows by 4% on average, the US and Europe will loose standard of living at a rate of about 2.5% per year compared to the rest of the world. Of course, compounding inevitably leads to a situation where in a mere 30 years (one generation) the standard of living of Europeans and Americans compared to the rest of the world will have halved (1.025^30), with no end in sight. So with such a desperate future facing their children, what will Americans do? You guessed it! Vote for even more redistribution and more taxes i.e. even slower growth.
This, in a nutshell, is the Grecian vicious cycle at work, which is now eating the bowls of American exceptionalism. Once past the tipping point, there is no return. Just hope that you have not past it yet and can/will, make a 180 turn soon.
P.S. BTW, a fact that is ironically prescient and perhaps not quite a coincidence. Do you know the slogan under which the 1st socialist Greek prime minister (Mr. Andreas Papandreou, the man most responsible for setting in motion Greece’s eventual bankruptcy) got elected? That’s right: “Αλλαγή”, spelled “Allaghi” that is: “Change”. Who is in the Vanguard of political progress? The US or Greece?
http://www.yourdictionary.com/biography/andreas-papandreou
“…Papandreou campaigned with the slogan Allaghi (change), which led to PASOK’s triumph with 48 percent of the vote and 173 seats in Parliament….”