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Sunday, December 12, 2010

Tax increases still hanging fire

So as I write this, everyone in the country who has a job — and granted that's not many of us it seems — is set to take a pay cut on January 1.
A pay cut you say? Yes, sir.
The tax cuts signed into law by then-President George W. Bush which cut taxes for every American with a job are set to expire Jan. 1. President Barack Obama announced Monday night he had reached a deal with Republicans which would extend the cuts for another two years, add over a year of unemployment benefits and several other things here and there.
The Democrats are not happy, and Senate Majority Leader Harry Reid has yet to sign off on it as of press time.
The Democrats keep saying they want "tax-relief" for the middle class, and try to imply that extending the tax cuts for income earners under $200,000 is somehow a tax cut.
Now I'm not certain how keeping tax rates at their current level constitutes a tax cut or "relief" in any shape, form or fashion.
But then, over the years I've several times tried to put myself in the mind of a liberal and the mental gymnastics required have always left me with a sprained brain.
So let's look at this from a logical stand point.
The liberals call extending the cuts (and keep in mind these aren't really cuts, these are tax rates which have been in effect for 10 years now, so in reality this is a tax hike) for any individual who makes more than $200,000 a year and families who make more than $250,000 "irresponsible," and "welfare for the rich."
I generally wouldn't look at someone who makes that sort of salary as "rich." Comfortable perhaps, but not rich.
Most of us know someone or have a relative who makes that sort of money, and they're often struggling just as much as anyone else. Moreover, that class of folks generally includes most small business owners. You know, the people who do most of the hiring?
Moreover, that's gross income, not net.
As an example, I was once a small business owner myself. Little sole proprietorship. My best year, before the tanking economy put me out of business more than $100,000 passed through my hands. Key here — passed through. I was lucky to get to keep around $20,000 of that — and in point of fact it was quite a bit less after cost of inventory, fuel costs, repairs and all the rest.
But all of it counted as personal income, regardless of how much I actually kept.
This is often the case with small businesses.
Then of course there's the uncertainty factor. Among the reasons employers have not been hiring is they don't know what the tax rates will be after the first of the year. When business owners are uncertain about what's coming they tend to sit on their money.
If we want them to start hiring, then we need to provide some stability — something the administration does not seem to understand.
In addition, we need to keep in mind our economy is in many ways a service economy — in other words, for there to be economic growth people need to be spending money.
Again it's the uncertainty factor. If I don't know what my pay check is going to look like after the first of they year, then I'm unlikely to spend money.
Also, and this theory is sound, has worked every time it's been tried, if you let people keep more of their money, they will spend it. Then the economy grows, then revenues to the federal government go up. If you don't believe me, look it up. Check first what happened when John F. Kennedy cut taxes, then check to see what happened when Ronald Reagan dropped the top rates.
To his credit, President Barack Obama seems to finally be realizing he got his head handed to him in November and that he's going to have to compromise. The problem is the liberals in Congress are still living in a world all their own and are trying to block extension.
I think some sort of compromise will be reached, probably tied to continuing unemployment benefits and it will likely happen this week.
Regardless, we've got to get away from the nutty policies we've had for the last two years and start doing some things to get the economy back on track. Extending the tax cuts is the first step.
All IMHO, of course.

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