If Congress doesn’t act to change existing legislation, the Bush tax cuts will soon expire. With the economy still in the doldrums, there has been much talk about keeping the lower tax rates to help boost economic activity, at least for all but the top 2 percent of earners in the nation.
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Republicans in Congress would like to prevent tax hikes on all American taxpayers, based on the belief that higher taxes will further harm the economy by discouraging spending and eliminating jobs. However, Treasury Secretary Timothy Geithner maintains that we can’t afford to keep the tax cuts for the richest among us.
Who is included in the group often referred to as the richest? Individuals who earn at least $200,000 per year, and families who earn at least $250,000 per year are America’s richest taxpayers, according to Geithner. In a recent MSNBC interview, Geithner said that extending the tax cuts to all taxpayers would not help the economy.
“It’s asking us to go add another $700 billion to our nation’s debt over the next 10 years to extend tax cuts which have a terrible record in helping economic growth and helping spark business investment. It’s just not a good use of limited resources,” he contended.
One Senator, Mitch McConnell (R- KY) has proposed a bill to make the tax cuts permanent. But, generally speaking, most of the support in Congress is for a temporary extension. Members of Congress from both political parties have promoted a 12-to-24 month extension of the lower tax rates while the recession continues.
The Huffington Post quotes part of a letter sent by 31 House Democrats in support of the tax cuts for all. "Given the continued fragility of our economy and slow pace of recovery, we share their concerns. While those in the highest income brackets comprise only 2 to 3 percent of American taxpayers, economists estimate that they are responsible for 25 percent of national consumer spending."
Still, Geithner seemed to suggest that the push for any extension at all was a veiled attempt by the GOP to cement in place the Bush tax cuts.
"If you put those politics aside,” he said, “we're having a debate about what's the best policy for America right now." He added that those who favor a temporary extension "want to do it so they can maximize the chance that they can do it permanently. That's not what we want to do right now.
"What separates us is there are some people in Congress who want to permanently extend the tax cuts at the high end, the richest 2 percent of Americans, and that costs $70 billion [per year]. We think that would be irresponsible.”
Opinions are all over the map about whether tax cuts will raise tax revenue or lose revenue. Interestingly, Treasury.gov, the Web site of Geithner’s department presents a fact sheet that includes the following information: The Reagan tax cuts in 1981 initially resulted in lost revenue. But the Treasury goes on to state that the lost revenue was because of an error in monetary policy by the Federal Reserve, which brought inflation down too fast and masked the effects of the tax cuts. When the Federal Reserve mistake was corrected, tax revenue rose in spite of slashed tax rates.
“As inflation came down and as more and more of the tax cuts from the 1981 Act went into effect, the economy began a strong and sustained pattern of growth. Though the painful medicine of disinflation slowed and initially hid the process, the beneficial effects of marginal rate cuts and reductions in the disincentives to invest took hold as promised.”
Geithner told MSNBC that consumer spending has been “reasonably healthy” in what he refers to as the “early stages of the economic recovery.” But, he admitted, the growth he refers to has not been fast enough to bring down the unemployment rate.