Byron Schlomach
Goldwater Institute Daily Email
Published: 06-30-08
Every Presidential election year candidates roll out tax plans aimed at wooing voters. This year one of the debates is whether the Bush tax cuts should be made permanent.
The 2003 tax cuts simplified income tax brackets and slightly lowered rates. Consequently the income tax’s penalty on work investment and innovation was reduced. Eliminating these cuts would be poor economic policy poor tax policy and poor social policy.
The long-term capital gains tax rate now 15 percent—which will revert to 20 percent in 2011 if the tax cuts are not made permanent—makes us competitive internationally. This increase would raise the tax on investment gains by one third increasing the tax from about the world average to one of the world’s highest. This is hardly a formula for domestic investment in job growth.
But these tax cuts don’t just help investors. Families would also see their taxes increase. Half of current child tax credits would disappear dropping from $1000 per child to $500. Grandparents could pass on less to their grandchildren too because death taxes would also rise.
The federal deficit is certainly a problem but the culprit is federal spending not tax rates. Spending is growing twice as fast as the government’s bank account and twice as fast as it needs to provide services for our growing population. From 2001 to 2008 federal outlays increased at an average annual rate of 3.6 percent three times the rate of population growth. And contrary to what some argue tax revenues did not dry up but rather increased over that period at an average annual rate of 1.4 percent. The problem isn’t too little revenue but too much spending.
Congress rarely practices spending restraint for the sake of reducing the national debt. Nevertheless that’s exactly what we need.
Dr. Byron Schlomach is director of the Center for Economic Prosperity at the Goldwater Institute. This piece was originally published by BusinessWeek online.
