From the Crow's Nest / Ed Chrostowski
No economic salvation in debate over tax cuts
Published 12:36 pm, Wednesday, September 22, 2010
Of all the burning issues in this fall's election campaign, whether to extend the multi-trillion dollar Bush tax cuts, a third of which went to the 2 percent of Americans described as the wealthiest, is generating the most heat although, ironically, the argument is based on a largely flawed premise.
Politicians and economists on either side of the issue seem to feel that the correct answer will lead the nation out of its economic morass. In truth, it won't, not by itself anyway. It is a fact, however, that the wrong one can hinder an already frail recovery.
President Obama wants to continue the cuts for everybody except individuals earning $200,000 or more a year and households with annual incomes of $250,000 or more. That reportedly would encompass many proprietors of "small businesses," though with net incomes at that level, it doesn't seem likely these are exactly mom and pop stores.
Advocates of extending the tax cuts across the board contend that small businesses, the backbone of the economy and the best hope for alleviating unemployment, will be greatly harmed if the cuts are allowed to expire at year's end. Small businesses are already struggling, they say, and the loss of those tax breaks will seriously impact product development and marketing and thus stymie creation of jobs sorely needed in recessionary times.
On the other hand, extending the cuts for America's middle class would leave more spending power in the pockets of consumers where it can do the most to boosting the economy. Reports from the Commerce Department in Washington this week indicate the biggest increase in two years in wholesalers' inventories. That signals a need for greater consumer demand and purchasing capability, which, according to theory, stimulates production, sales and jobs.
Laws "temporarily" cutting taxes on incomes and capital gains were passed during the George W. Bush years apparently in allegiance to the "trickle down" principles that the elder Bush, George H.W., once decried as "voodoo economics." Since then, foregone revenues have totaled $1.7 trillion and the national debt has ballooned, albeit puffed up by wars and the recession.
In those years, the small businesses that supposedly would be so grievously impacted now by expiration of tax cuts have generated only a feeble response to the unemployment problem. At the same time, it can be argued fairly that the cuts didn't do a lot for consumerism either. Clearly, the tax tide did not float all boats.
Extending tax credits for research and development and allowing companies to write off 100 percent of any investments through next year would position small businesses to make some tangible inroads on unemployment. It could help produce the kind of business climate that would entice investors who now supposedly would be turned off by expiration of the tax cuts.
The truth is, of course, that extending or curtailing the Bush tax cuts, whether for everybody or just the wealthiest, probably would not have an impact of epic proportions on the American economy.
Instead, the issue is on the front burner now because politicians recognize a hot button that will buzz all voters. They can rant about plunging the nation further into debt by foregoing revenues lost to tax cuts. They can plead for the economic well-being of small business and they can fret about the capital investments the economy would lose if tax cuts are permitted to expire for upper incomes. And they can find lots of folks, enough to make a formidable showing at the polls, who agree with them on any one of those contentions.
But when all is said and done, Americans will realize that neither side of this big election year debate offers a panacea for the ailing economy. What we need to do is opt for the program that gives the economy a better chance to thrive than has been the case over almost a decade. That should include avoiding further debt by restoring taxes to pre-Bush levels for the wealthiest Americans, giving consumers more spending power and giving small businesses the economic benefits that encourage the growth that can mean new products, services and jobs.