As originally scheduled when they were enacted, the Bush tax reductions expire around the end of the year. The Obama tax plan would extend for two years the Bush tax cuts for everyone except those who make at least $200,000 a year. The GOP contends the wealthy will curb spending vital to financial growth if their taxes are increased. Obama uses deficit reduction as his rationale for leaving individuals considered rich out of the tax cut equation. Some analysts say the Obama tax plan won’t make a difference in reducing the deficit, when tax cuts in general won’t help the economy. For the time being it does not matter. Political figures have temporarily tabled the issue. As the issue involves taxes, it would be expecting a lot for Democrats to make a stand on the issue until the midterm elections are over. Resource for this article – Facts about extending the Bush tax cuts and the Obama tax plan by Personal Money Store.
A closer inspection at the Obama tax plan
Obama’s plan to raise taxes for the rich may not sting as much as Republicans claim. Bob Williams at the Christian Science Monitor took a close take a look at the details. For example, for making sure that people who make less than $200,000 don’t get hit with more taxes, more incomes fall to the 28 percent tax bracket. For a few of the more wealthy working class individuals, this measure could cut their taxes by various hundred dollars. It also provides a small cushion against higher taxes for people just over the $200,000 threshold. According to a study by the Tax Policy Center, Obama’s proposal to rescind the Bush tax cuts for the rich will increase rates for just 1.7 percent of taxpayers. Ordinary income has nothing to do with higher taxes for the rich. Williams writes that they’re concerned with income most Americans are unfamiliar with. A boost from 15 to 20 percent in the rate on capital gains and dividends is what the wealthy are really concerned about. Obstructionist Republicans could possibly be doing their constituents a disfavor. If no action is taken and the Bush tax reductions expire as planned, the top dividend rate shoots up to 39.6 percent.
Why tax reductions might be the wrong idea
Tax cuts of any kind aren’t the way to solve the economy’s problems, as outlined by Diane Lim Rogers writing on CNN . Committing to either the Republican or Democratic tax plans, Rogers writes, will result in the government losing revenue for years, keeping Americans from saving and an economy stunted within the long term. Obama has said that rescinding the Bush tax reductions for the wealthy will trim $700 billion from the shortage in a decade. Nevertheless, the cost of stretching the cuts for the rest of the population–$2.2 trillion-more than cancels out any savings. Lim Rogers writes that deficit-financed fiscal policies (read economic stimulus) have a bigger bang for the buck in terms of boosting demand for goods and services and creating jobs. She also discounts the temporary nature of the tax cut strategy. A long-term approach is necessary to truly reduce the deficit. This is because the United States government can’t be trusted to let expiring tax cuts expire–as it is proving now.
Additional reading
CS Monitor
csmonitor.com
CNN
cnn.com
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