In 2011 the American economy, still reeling from the current recession, will suffer a new blow. The broad-based tax cuts Congress enacted earlier this decade will expire, and a massive new tax burden will be imposed on our nation’s businesses and working people.
Democratic leaders in Congress know this will devastate any claim to a recovery, so they are considering a double strategy: A) Do nothing to stop automatic increased taxes on incomes above $200,000 (for singles) to Clinton-era levels—a more than 10% hike on income plus a one-third tax increase on capital gains at that level. B) Extend some Bush tax cuts for lower and middle incomes. This will raise marginal tax rates and bring down incentives for economic growth. Business and job expansion will fall, prolonging the current stagnation further into future years.
Republicans like myself want all Bush-era tax cuts extended. We aren’t seeking new cuts (though my Roadmap for America’s Future does call for simplified and lower-rated personal and corporate tax structure). We only want to preserve the tax rates we have now. And it’s not just Republicans in Congress. Fed Chairman Bernanke, Democrats such as Representatives Gerry Connolly, Bobby Bright, and Mike McMahon, and Democratic Senators Evan Bayh, Kent Conrad, and Ben Nelson agree with us.
When we are struggling with a feeble “recovery,” almost 10% unemployment, and anemic growth, the worst thing we could do is raise taxes on any part of the economy.
Democratic leaders who want taxes to rise on incomes over $200,000 are not talking about the super-rich like Warren Buffet and Bill Gates. To get the revenue they want, they propose taxing the main engine of our job creation machine, successful small businesses. Fifty percent of those who pay top tax rates are small businesses that file as individual taxpayers, not corporate filers. Twenty to 30 million people have jobs that depend on them. Roughly 60% to 80% of new jobs are estimated to come from new small businesses.
Right now when our economy is performing too poorly to generate healthy business growth, tax hikes on entrepreneurism will only slow down this “jobless recovery.” Raise taxes on employers paying at individual rates, and you end up taxing working Americans out of jobs.
U.S. taxes on business are higher than almost any country in the world. When we tax our employers more than our foreign competitors’ tax theirs, they get jobs we should keep at home, and we lose in global competition. I have never understood the thinking that will spend $862 billion on a jobs stimulus scheme but refuse to keep tax rates at a low level to stimulate job creation. It seems like loving job creation while punishing the job creators.
Today there is growing uncertainty about the future tax burden. Those who would build businesses and expand employment hold back when the tax future is unpredictable. These taxpayers need certainty that they will not face a huge wave of tax increases in 2011 and another one in 2013.
Reducing deficits should begin with a budget plan to cut spending, yet incredibly Congress abandoned its legal obligation to write a budget this year, which means the leadership has abandoned even the pretense of limiting government’s insatiable spending appetite. I hope the Debt Commission, of which I am a member, will identify potential major spending reductions when we publish our report in December. But waiting for somebody else to suggest cuts was no excuse for Congress to dismiss its mandate to write America’s budget.
There’s no shortage of ideas for cuts we could make immediately. Last year I identified $4.8 trillion we could cut. Right now we could easily reduce spending by $1.3 trillion by: rescinding $266 billion in unused stimulus funds and another $16 billion in leftover TARP money; saving $925 billion by cutting and capping discretionary spending at 2008 levels; imposing a hiring and pay freeze on government employees, saving $65 billion; and reforming Fannie Mae and Freddie Mac, the proximate originators of the home mortgage meltdown, to save $30 billion. I would also give the President line-item veto authority to realize further savings.
The American people and both parties see the need to get federal spending under control. Any time congressional leaders want, we can start by cutting unnecessary expenditures. Let’s not punish business and workers by raising their taxes at a time when the economy is struggling to return to a growth path—that would only make a desperate situation worse.