On Sunday, June 6, the Wall Street Journal posted an article by Arthur Laffer on the coming expiration of the Bush Tax Cuts. Contrary to idea that these were only "tax cuts for the rich", these tax cuts were structured to keep the economy growing by putting money in the pockets of consumers at all economic levels.
According to the article:
"On or about Jan. 1, 2011, federal, state and local tax rates are scheduled to rise quite sharply. President George W. Bush's tax cuts expire on that date, meaning that the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15%, the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero. Lots and lots of other changes will also occur as a result of the sunset provision in the Bush tax cuts."
One of the basic rules of economics is that you don't raise taxes during a recession. If you follow the above link to the article, you will see the graph showing what happened in the early 1980's when President Reagan lowered tax rates. Mr. Laffer believes that the inverse of this graph will occur if the Bush tax cuts expire.
It is doubful that Congress will take responsibility for the economic meltdown that follows the expiration of these tax cuts, but the American people need to hold them responsible. It is important to remember that when tax rates go up, the amount of revenue received goes down. When tax rates are lowered, the amount of revenue coming in to the government increases because the amount of taxable economic activity increase. This seems illogical, but historically has been proven to be true. If you google the "Laffer Curve", you will see the evidence of this.
The only conclusion I can draw from the fact that Congress seems to be willing to let these tax cuts expire is that the only hope America has is to elect a new Congress. Support your Congressional candidates that call for less spending and renewing the Bush tax cuts.
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