* I am revisiting this old diary and this problem looking ahead to the President's speech and I think it will be useful to repeat these basics concepts again and again, givent the current political environment.
This debate is so fundamentally important for the future of the nation that I will discuss portions of an article written by William G. Gale published by the Washington Post (title in the headline) back in August 1, 2010. I would encourage you to think about the whole concept of Tax Cuts by using your basic knowledge of economics and I am serious about this. You can be for or against this notion, but the information is not that complex or difficult to understand, especially for the smart folks writing here on regular basis, thus read on and then comment...or get emotional/angry about it!
Myth 1- Extending the tax cuts would be a good way to stimulate the economy.
"Extending the tax cuts would (could) be a good way to stimulate the economy...But a good stimulus policy can't just be big; it should also offer a lot of bang for the buck. extending all of the Bush tax cuts would have a small bang for the buck, the equivalent of a 10- to 40-cent increase in GDP for every dollar spent."
(Comments follow)
Applying basic economic knowledge we have that by letting the high-income tax cuts EXPIRE there is a substantial amount of EXTRA REVENUES COMING IN which could be used to give credits to those who are in need, that is many States of the Nation, people who are in unemployment and small businesses actually CREATING JOBS.
Myth 2 - Allowing the high-income tax cuts to expire would hurt small businesses.
"This claim is misleading (to say the least). If, as proposed, the Bush tax cuts are allowed to expire for the highest earners, the vast majority of small businesses will be unaffected. Less than 2 percent of tax returns reporting small-business income are filed by taxpayers in the top two income brackets -- individuals earning more than about $170,000 a year and families earning more than about $210,000 a year."
In simpler terms and ANYBODY who understands ANYTHING about how the economy works should know it, small businesses ARE NOT OWNED BY THOSE IN THE TOP INCOME BRACKETS. Those RICH FOLKS get their money from a myriad of different sources that have nothing to do with the ones I am discussing.
Myth 3 - Making the tax cuts permanent will lead to long-term growth.
"In fact the tax cuts have raised the cost of making new investments...the overall effect of the Bush tax cuts on economic growth has therefore been negative -- and it will continue to be negative if the cuts are extended.
This means that less taxes provoke higher government debt which provokes higher interest rates, in other words THE COST OF BORROWING MONEY INCREASES.
Myth 4 - The Bush tax cuts are the main cause of the budget deficit.
"Although the cuts were large and drove revenue down sharply, they are not the main cause of the sizable deficit that exists today. In 2007, well after the tax cuts took effect, the budget deficit stood at 1.2 percent of GDP. By 2009, it had increased to 9.9 percent of the economy."
I disagree with the author's qualified statement on this point. Evidently the tax cuts were and are not the only or main reason of the deficit, but IT IS ONE THE MORE IMPORTANT CAUSES/REASONS. In other words, the "recession valiantly avoided" TARP and the bailouts compounded the problems, yes, but the foundations were already weakened by Bush's ill-conceived and perverse economic policies.
Myth 5 - Continuing the tax cuts won't doom the long-term fiscal picture; entitlements are the real problem.
"The deficits we face over the next decade reflect a fundamental imbalance between spending and revenue, one that goes beyond entitlements. Based on projections by the CBO, Alan Auerbach of the University of California at Berkeley and myself, among others, even if the economy returns to full employment by 2014 and stays there for the rest of the decade, the continuation of current fiscal policies, including the Bush tax cuts, would lead to a national debt in the range of 90 percent of GDP by 2020. That's already the highest rate since just after World War II -- and Medicare, Medicaid and Social Security aren't expected to hit their steepest spending increases until after 2020."
One needs to repeat this point based on REALITY which must be used to confron the Republican Lie about "entitlement programs." I cite again:
"The continuation of current fiscal policies, including the Bush tax cuts, would lead to a national debt in the range of 90 percent of GDP by 2020."
Here is the link for the original article:
http://www.washingtonpost.com/...
Again, I simply paraphrased and commented on some salient points of the author's work. I forced myself to do so because it is a good exercise. At the end of the day, some basic economic principles that you folks apply to your own lives on daily basis, mirror similar decisions and principles applied by the economic authorities at the MACRO level.