Next week, as the outgoing members of Congress open a lame duck session, the big issue on many minds revolves around tax cuts that George W. Bush instituted in 2001, since they’re currently set to expire at the end of the year. Everyone is wondering whether they’ll be renewed across the board, or whether—as President Obama wishes—they’ll be renewed for everyone except the richest 2% of Americans. We also want to know: Which scenario has the best shot at helping our ailing economy?
Both Sides Agree…On Some Things
Republicans and Democrats are alike in supporting the renewal of the tax cuts for middle-class Americans. Congressional Republicans, however, generally support renewing all of the tax cuts, whereas Democrats point to the budget deficit and insist that the rich don’t need the extra break.
How Rich Is Rich?
Under this scheme, the cutoff for being considered part of the upper echelon of wealth is $200,000 for individuals and $250,000 for couples or families. So, whereas right now those people pay 35% income tax, they’ll have to pay 39.6% if the tax cut is discontinued.
The Republican School Of Thought
The economy is fragile, so Republicans are trying to build more jobs and keep money flowing through the system. Many feel that allowing the tax breaks to expire, even temporarily, would deal a blow to people’s spending money and stunt economic recovery, since consumer spending accounts for about 70% of the economy. Additionally, they’re concerned that letting the tax cuts expire would hurt many small- and medium-sized companies, which account for about a quarter of the American workforce: Many of those businesses are structured so that entrepreneurs pay company taxes through their own personal taxes. Republicans fear that failing to renew the tax breaks will bump small business owners into a higher tax bracket, even if those entrepreneurs reinvest most of their profits back into the business. As a result, the tax cut may kill jobs at small companies.
The Democratic School Of Thought
Our current national debt is almost $14 trillion, and extending the tax cut would cost $3.8 trillion over ten years. Obama’s plan to limit the tax breaks for upper-income people would reduce that cost by about $700 billion. Under the Democratic plan, the majority of Americans would continue to enjoy their tax cuts—only the top 2% wouldn’t. According to The New York Times, under the current plan, households with more than $1 million in income would receive an average tax cut of about $100,000. Under Obama’s proposal, that number would shrink to about $6,300. Plus, some pundits answer the Republican concern about small business owners and job losses with the fact that less than 3% of small-business tax filers actually pay at the top two income tax levels.
What do you think? Will the Obama plan rob small businesses of resources and hurt the job market? Or, is it the more financially responsible choice? Tell us in the comments!