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If The “Bush Tax Cuts” Expire

With less than four months until America’s voters get to choose their next president, one issue they will undoubtedly focus on is taxes. We growled on June 28, 2008 about the cost of the promises made by the two presidential candidates. Even worse, is that one party has promised to allow the so-called “Bush tax cuts” to expire. In the latest issue of the Hoover Digest, two renowned economists argue that:

“Letting the Bush tax cuts expire would wreak havoc on our economy—while doing virtually nothing to shrink the deficit.”

As a bit of background, Cogan and Hubbard write:

“The tax code changes enacted in 2001 and 2003 are scheduled to expire at the end of 2010. If they do, statutory marginal tax rates will rise across the board, ranging from a 13 percent increase for the highest-income households to a 50 percent increase for lower-income households. The marriage penalty will be reimposed and the child credit cut by $500 per child. The long-term capital-gains tax rate will rise by one-third (to 20 percent from 15 percent), and the top tax rate on dividends will nearly triple (to 39.6 percent from 15 percent). The estate tax will roar back from extinction at the same time, with a top rate of 55 percent and an exempt amount of only $1 million. Finally, the alternative minimum tax will reach far deeper into the middle class, ensnaring 25 million tax filers in its web.”

Two comments in the article are all one needs to know about the future tax burdens and America’s economic future if these tax cuts are allowed to expire.

  • “Letting the Bush tax cuts expire would drive the personal income tax burden up by 25 percent—its highest point, relative to GDP, in history.”
  • “As in the past, the economic damage caused by the tax increases and tax-avoidance behavior would prevent the promised revenues from being realized. At the same time, Congress would keep up its profligate spending.”

If your favorite tax-and-spend politician needs a picture, here is one graphic from the article:
         

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