Charlie Leonard: Election really about taxes
July 24, 2010
Partly as a result of the scheduled expiration of the Bush tax cuts at year’s-end, and partly as a result of Obamacare taking effect in January, the next Congress will make the most important tax policy decisions since the establishment of the permanent income tax nearly 100 years ago.
If Democrats succeed, 2011 will usher in the largest tax increase in our history. If Republicans succeed, income taxes will likely remain the same as today but we would also see new tax policies aimed at jump-starting our economy – including suspension or replacement of the 20 new taxes due under Obamacare.
The expiration of the Bush tax cuts will mean higher taxes on many in the middle class with the reinstatement of the “marriage penalty” and smaller child tax credits; it will bring back the “death tax” with a 55 percent federal tax on family inheritances including farms, homes, and small businesses; and it will mean higher tax rates on savings, investment and retirement accounts with staggering jumps in capital gains taxes and taxes on stock dividends – a far cry from merely taxing the rich.
The president and Congressional Democrats promised that if we borrowed and spent nearly a trillion dollars in “stimulus” they would prevent unemployment from rising above 8 percent. Now, some 18 months later, with unemployment stuck above 9 percent for over a year, it’s abundantly clear they were wrong.
Between 60-80 percent of all new job creation in this country occurs in small businesses. During the debate over the stimulus, Republicans argued for small business tax relief, credits for capital investment, reduction in payroll taxes and other incentives for hiring. Democrats objected. Now, having failed to “stimulize” small business, the Democrats plan to add even more taxes and health care costs on top of small business.
The president clearly believes the way to reduce our borrowing is by taxing more. Republicans believe we need to both cut spending and encourage economic growth as a means of lowering our borrowing and national debt.
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The president likes to blame George Bush’s tax cuts. In reality, total tax receipts in the Bush era were relatively unchanged despite the tax cuts. Cutting the capital gains tax rate, for instance, produced even more capital gains tax receipts as a result of economic growth. What did happen, however, was that spending increased steadily as a result of entitlement costs (Medicare, Medicaid and Social Security) and the wars in Iraq and Afghanistan, and then dramatically increased as a result of this administration’s stimulus spending.
When it comes to taxes, the president is playing a cynical game of class warfare. He says he can dramatically increase government spending and still make sure only the wealthiest have to pay more – their “fair share” as he likes to say.
In terms of economics, it’s simply not possible. First of all, there are not enough rich people to pay off the debt we have created. Secondly, we all know that imposing enormous new taxes on business and business-owners causes those taxes to be transferred to every consumer in the form of higher prices. We also need to ask ourselves how long we believe our society can function with half the population paying all the bills and half permanently dependent on government programs and entitlements.
Here are the facts: Currently, only about one half of American workers pay federal income taxes. In fact, 60 percent of the country paid only about 3 percent of all federal income taxes last year, while at the same time consuming the lion’s share of federal programs. Contrast that with the fact that the top 10 percent of all income earners paid more than 70 percent of the country’s federal income tax.
In the business world, the consequences of the president’s desired policies would be equally damaging. As many small business owners in the Roaring Fork Valley understand, lower taxes enable them to reinvest the tax savings in their businesses and create local jobs.
The same is true for larger businesses. The United States today has the second highest corporate income tax rate in the developed world and the president and his Democratic allies would make it even higher. At 35 percent, corporate taxes in the United States are 50 percent higher than in most European countries. Even the Scandinavian countries – unabashed about their socialistic tax policies – have rates below 30 percent.
The rest of the world has figured out how to incentivize businesses to employ their citizens. They know that corporate taxes are a drain on economic growth, increase the cost of doing business, and result in higher priced consumer goods. High corporate taxes make it more difficult to keep multi-national companies from relocating to friendlier tax jurisdictions and employing the population there. Taken together, these corporate tax policies cause those on the lower end of the socio-economic scale to suffer the most, forcing them to increase what they pay for consumer goods, and decreasing their opportunities for employment.
For the past 30 years, federal taxes have averaged about 18 percent of our total economic production. Without Congressional intervention in January, the federal government will tax more than 20 percent of our total economy and be on a path to tax 25 percent of it in a few years.
In the final analysis, the November election is fundamentally about whether you believe the government should tax more so that it can spend more. Republicans are firmly opposed to increasing taxes or the size of government.
Whether they succeed is up to you.
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