Job Creation and Tax Cuts
Create Jobs: Extend Tax Cuts for
the Middle Class, End Them for the Wealthy
November 8, 2010
Congress has one major piece of
unfinished business that must be tackled before the year ends: taxes. During
the Bush administration Congress passed two sets of enormous tax cuts that were
skewed to benefit people with the highest incomes. To make the revenue losses
appear more manageable, the cuts were phased in over a number of years and then
scheduled to abruptly end on December 31, 2010. These gimmicks greatly reduced
the 10-year cost of the tax cuts, making them more palatable to anyone
concerned about the impact on the federal budget of trillions in lost revenue. But
at the same time, supporters of the cuts assumed that Congress would make them
permanent before they expired. The witching hour has now arrived.
These Bush tax cuts are a major
factor driving up the federal government deficit. In 2009, the cuts were
responsible for over one-quarter of the record $1.4 trillion shortfall in the
federal budget.[i] Some 13% of the deficit was due to the cost
of the wars in Iraq and Afghanistan
and the other 60% was caused by the economic downturn. Fewer people working
means people pay less in income and sales taxes. And while our safety net is
meager, it is still costly when millions of additional people are eligible for
unemployment insurance, food stamps, and Medicaid. Bailing out the banks, AIG,
and the auto industry was also expensive.
So what is a responsible member of
Congress to do?
Many voters believe the nation’s priority
must be putting people back to work. It is the only way we will ever get the
deficit under control. People certainly need jobs and the paychecks that come
with them. But the nation also needs the taxes that workers pay on their incomes,
and the sales taxes they pay when they spend it. When more people work, fewer
rely on safety net programs and government costs fall. A robust economy also
means businesses thrive and pay taxes. So to boost tax revenues and cut
government costs, we must get people working again.
President Obama is proposing to extend
the Bush tax cuts for lower- and middle-income tax payers. But he wants to end
the cuts for married tax payers with incomes over $250,000 and singles with
income over $200,000. This would affect just 2%[ii] of
tax payers while bringing in $40 billion in 2011.[iii] But
some members of Congress prefer to extend all the tax cuts including those for
the highest earners.
What is the best use of $40
billion? Should the skewed Bush tax cuts that bestowed the greatest benefits on
our wealthiest citizens be extended, allowing them to keep the $40 billion? Or
should this money be used for another purpose?
Of eleven job-creation options examined by the nonpartisan Congressional
Budget Office, extending the tax cuts for high-income tax payers was the least
effective. Providing aid to
state governments so they could minimize layoffs would create two to three
times as many jobs as extending the tax cuts for the wealthy, and providing a
job-creation tax cut for businesses would generate four to six times a many
Congress should have no doubt about the best course of action. End the tax
cuts for the 2% of our wealthiest tax payers while extending them for everyone
else. Once the current unemployment crisis is behind us, the additional revenue
can be devoted to reducing the deficit.
In recent years, the rich have
gotten richer and everyone else has gotten the left-overs. Ending the Bush tax
cuts for the highest-income tax payers would slightly reduce this disparity. It
could also create jobs in the short run, and reduce the deficit in the longer
term. Congress should have no doubt about the best decision to make.