Debate continues on whether to extend the Bush tax cuts that are set to expire on December 31st, 2010. With the economy in a deep recession it is easy to say we should extend the tax cuts to generate revenue, and perhaps even make them permanent. However, the problem isn’t quite so simple as the national debt soars over $300 trillion.
President Obama made a promise to never raise taxes on Americans making less than $250,000. Some have argued that because of the increased taxes on cigarettes, as well as the coming taxes on those without health insurance (2014), Obama has already broken that promise.
Many Americans agree that the tax cuts on those making more than $250,000 should be allowed to expire. When it comes to other Americans, the right course is more ambiguous.
In the hope of lowering unemployment, currently at 9.6 percent, small businesses tend to support extending the Bush-era tax cuts. According to Representative Peter Roskam of Illinois, 80 percent of new jobs comes from small businesses. Additionally, 75 percent of small businesses file their business income on their personal taxes, according to the National Federation of Independent Business. Along these lines, letting tax cuts on those making over $250,000 expire could be crippling, especially after the recent economic downturn. A business making around $400,000 faces a potential increase of $12,000 in taxes.
It is true, however, that most small businesses do not make over $250,000 annually. In fact, according to the National Federation of Independent Business, only 3 percent of small businesses make over $250,000. The catch is that this three percent employs about 25 percent of the American workforce.
It isn’t just small businesses who worry about letting the tax cuts on those making over $250,000 expire. Some economists, such as Mark Zandi, worry that wealthy households are our biggest spenders and might spend less if faced with higher taxes. For the economy to recover, it is critical that spending does not stop.
U.S. Treasury Secretary Timothy Geithner has stated that, “Permanently extending the tax cuts for the top two percent would require us to borrow $700 billion more over the net decade, significantly adding to an already unsustainable level of debt.”
Republicans are unified in their front to extend all tax cuts indefinitely. Democrats, on the other hand, are split between temporary extensions of the cuts or Obama’s plan to bump up taxes on the wealthy while leaving other tax rates as they are.
While the dispute over what to do with tax cuts rages on, others are fighting to reign in government spending, which has increased with the hopes that it would stimulate the economy. The flip side of the coin is that the deficit has borne the effects. Consumers, fearful of job insecurity, continue to cut spending, leaving the government as the only viable party to support our economy.
All political seats in upcoming elections hinge largely on finding solutions to these issues. With traditional solutions for both steep national debt and suffering small businesses stalled in a clash, now is the time for ingenuity in Washington.