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Tax Cuts Still Planned   December 28th, 2008
Obama still plans middle class tax cut       

 
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It looks like Obama continues to embrace tax cuts, at least for the middle class. Unfortunately it still looks like he wants to increase taxes on the wealthy and he's signing off on a middle class tax cut for the wrong reason.

http://www.cbsnews.com/stories/2008/12/28/national/main4688760.shtml

A top adviser to President-elect Barack Obama said Sunday that the country's slowing economy won't keep the new administration from fulfilling its plans for a middle-class tax cut...

The incoming administration is considering tax cuts of $1,000 for couples and $500 for individuals that will be delivered by reducing the tax withheld from paychecks. That plan has been estimated to cost about $140 billion over 2009-2010.

The lump-sum rebates issued earlier this year were used by many people to pay down debt, rather than spending the money and boosting the economy as the administration had hoped.

"People need money in their pockets to spend," Axelrod said. "That'll get our economy going again."..

The slowing economy also means that it's more important than ever to eliminate President George W. Bush's tax cuts, Axelrod said. "It's something we plainly can't afford moving forward," he said. "Whether it expires or we repeal it a little bit early we'll determine later but it's going to go. It has to go."


I'm certainly in favor of tax cuts. However, it seems the new administration is proposing tax cuts for the wrong reasons.

The article states that people used the stimulus checks earlier this year to pay off debt rather than to spend it and stimulate the economy; while I understand that a permanent tax cut that slightly increases take-home pay will be looked at by citizens as a little more long-term and reliable than a one-time "gift" from the government, it's unclear to me why anyone thinks people are going to spend that money when they continually hear that we're in the worst recession since the Great Depression. People are in a "hunker down" mentality and a few extra dollars per paycheck isn't going to change that.

Now, granted, the cynic in me believes that it isn't impossible that once Obama is sworn in, the media will stop hyping the economic crisis, bad news will subside, and people will slowly regain their confidence and start spending money. But that won't be because an individual is taking home an extra $10 per week but rather because he's being told the economy is improving--or at least isn't being constantly bombarded by scary economic news.

And while tax cuts are a good idea, the implication is they're being considered to help the economy out of a recession. If that's the case then what's the argument for increasing taxes on the wealthy during a recession? Is that going to help the recovery? After all, Obama has already told us that we "shouldn't worry about the deficit" for a few years so what is the urgency to raise taxes on the wealthy? If reducing taxes is going to help stimulate the economy, why increase them on those that have the most money available to spend? And if reducing taxes helps stimulate economic activity, what is the argument in favor of increasing taxes anytime, even during good economic times?

Minimizing taxes is good policy. But not just on the poor and middle-class, but on everyone. And not just during hard economic times.

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