TAX NEWS - 2010

Bush tax cuts: Don't let them expire

One topic that has gotten far too little media coverage is the looming expiration of the 2001 and 2003 Bush era tax cuts. Unless Congress takes action to renew them they will begin to sunset at the end of this year. If Congress permits that to happen taxpayers will face enormous tax hikes. Those increases will intensify the financial burdens that have already been imposed by the Obama administration and congressional Democrats.

On April 10, The Hill reported that President Barack Obama supports extending the tax cuts to those making $250,000 or less a year. That's not good enough.

Senator John Kyl, R-Ariz., has pointed out that unless Congress takes action, "Taxes will increase on families with children, on married couples, on income, on capital gains and dividends and even after death. It comes to a total of $2 trillion in new taxes over the next 10 years."

Congressional inaction will bring back the death tax, the marriage penalty tax and raise the capital gains and dividends taxes.

First, Congress should eliminate the death tax completely. Individuals who spend a lifetime building a business pay taxes throughout their lives. Most leave their lifetime of work to their children. It is wrong for heirs to be taxed for merely receiving an asset. This tax sends the message that it's better to spend one's assets in life than it is to invest and build and eventually hand a large tax bill to your heirs. The death tax has a negative impact on savings and investment and investment in particular is an undertaking that should be greatly encouraged during this time of economic instability.

Second, the marriage tax is unfair because it makes married couples pay a higher tax if they file jointly. Marriage should not be a taxable relationship.

Third, congressional inaction will raise taxes on capital gains and dividends, again, at a time when investment should be encouraged. Incredibly, President Obama has proposed raising taxes on dividend income from the current 15 percent to 20 percent. Raising taxes, especially during the current economic climate, would be the worst possible fiscal policy Washington politicians could impose.

It is not unreasonable to wonder: If Washington politicians are going to continue to spend, and they've already spent plenty, wouldn't it be irresponsible for them to continue to do so without generating any new income?

The answer is to only avoid further spending hikes but to make meaningful cuts in current spending and to lower taxes. This year the nation's deficit will hit $1.5 trillion. The Heritage Foundation has calculated that if Washington were to raise taxes to pay for entitlement spending it would have to double the federal income tax rates by 2050 and continue to increase them from that point on.

It is not unreasonable to wonder: Well, maybe the Democrats are right and we should raise taxes on only the rich. Can't we agree that to whom much has been given much is expected in return?

Those who embrace that philosophy will be delighted to know that's already the way it is. Last year Americans for Tax Reform pointed out that Internal Revenue Service data showed the top 1 percent of wage earners already pay more in taxes than the bottom 95 percent combined.

The Tax Foundation reported the top 1 percent of taxpayers pay 40.4 percent of all income taxes collected and the bottom 95 percent pay 39.4 percent. That means the top 1 percent, which numbers 1.4 million taxpayers, pays a larger share of the income tax than the other 134 million taxpayers combined.

Tax cuts did not send America's deficit roaring into the stratosphere. It was the extravagant spending of Washington politicians that thrust the economy into a tailspin. Raising taxes won't improve the situation. Spending reductions and tax cuts will.

Historically when taxes are reduced the federal government reaps more money and the economy grows because people have more to spend, invest and save. That's not propaganda from a political party. It's the way economics works and it's an historical fact.

During the 1920s tax rates were reduced from more than 70 percent to less than 25 percent and the result was an increase in federal revenue from $719 million in 1921 to $1.1 billion in 1928. That's an increase of more than 60 percent.

The trend was reversed when President Herbert Hoover raised taxes in the 1930s. During President Franklin D. Roosevelt's term in office taxes went up even more.

When President John F. Kennedy took office he lowered taxes across the board. The top rate was cut from more than 90 percent to 70 percent and tax revenues rose from $94 billion in 1961 to $153 billion in 1968.

Sounding very much like a conservative, Kennedy said, "It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenue to balance our budget just as it will never produce enough jobs or enough profits."

The nation would be far better off if current Democrat leadership took a page from Kennedy's economic playbook.

The inflation that seized the country during the 1970s thrust millions of taxpayers into higher brackets and when Ronald Reagan entered the White House he proposed tax cuts. The result: Tax revenues rose by more than 90 percent during that decade.

The Heritage Foundation's Daniel Mitchell wrote, "Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989."

As conversations in Washington's corridors of power focus on the economy and jobs it is clear that preventing the Bush tax cuts from expiring should be priority number one.