Byron Schlomach

Eliminating Tax Cuts will Dampen Economy

Posted on June 26, 2008 | Author: Byron Schlomach
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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 taxes 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 worlds 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 $1,000 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 governments 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.

Learn more:

Goldwater Institute: Miracle on Kildare Street: What Irelands Economic Revival Means for Arizona

Goldwater Institute: Corporate Tax Reform: How to Woo Business Without Spending a Dime

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