Tax Racket

                Before we head into the New Year, I wanted a chance to discuss the recently approved Tax Compromise that will take effect on January 1^st. I’ve also been dying to put in my two cents since the new tax code was approved in mid-December. First, to get a side-by-side comparison of how each of the different tax plans would have affected you personally, I highly suggest going to www.mytaxburden.org to view and understand what perspective you’re coming from before reading on. It may have an influence on your opinion – it did mine.

                Let me begin by saying there are both good and bad things about the new tax policy. However, I’d separate the good things into a short-term category, and the bad things into a long-term category so considering that tax codes are re-written every two years anyhow, the fact that the negative implications are far greater and will affect us fiscally as a nation for a longer period of time, concerns me.

1.       Extending the tax cuts currently in place simply perpetuates the status quo.

There are two levels to view this on – how it will affect you personally, and how it is going to affect our overall economic situation.  I can’t speak for the former but as for the latter, I’ll ask this, “How’s that workin’ out for ya?” In no complex terms, we’ve already tried this voodoo economics, trickle-down, fiscal bunk and it hasn’t worked! Corporations have posted record (and by record, I mean biggest ever since we’ve been recording these things) quarterly profits in three out of the four quarters of this year. So the first half of the plan worked; the tax cuts gave corporations the money they needed to hire more workers. However, the trickier and more important aspect, the actual jobs, never came. Very little explanation, no recovery. And this is the situation we’re willing to propagate?

If nothing changes, nothing changes. Come this time next year we’ll be no better off than we are today.

2.       The spending/borrowing the US will have to do to pay for these tax cuts ensures that job-creating legislation, such as the infrastructure bill due to hit the floor early next year, will be blocked on the basis of cost. Aka – we’ve already spent all our money.

It is not new news to most of us that the US is falling behind in our infrastructure and that goes far beyond the maintenance of our current system. China, along with other countries, is revolutionizing how its people and more importantly, products, are getting around. Not only is it an excellent way to increase business efficiency, it’s one of the best job-creators available. Providing far more bang for our buck than a tax cut, these projects would employ thousands American workers and as most building material is fabricated, manufactured, and sold domestically, would provide local stimulus as well.

American schools are also in dire need of some Federal attention. We need an overhaul in curriculum, equipment, and technology. It is almost impossible to list the reasons why this is so critically important.  One day, these kids whose education has been passed over time and time again in favor of short term political gains, will be the ones making Medicare decisions for all of us. That alone should be reason enough to ensure that they are, in the very least, decently educated.

3.       Since the compromise will have to be approved again at the end of next year and again in 2012, tax policy is going to take center stage in political and presidential campaigns for the next two years, taking the focus away from jobs and the economy as a whole.

This, in my opinion, is one of the worst consequences of the tax compromise. Allowing these tax cuts to expire again in two years is certain to dominate the majority of the presidential campaigns and, let’s face it, probably half of 2011. While I agree that tax policy is extraordinarily important (clearly important enough to write a diatribe on the subject) it is not the most important issue we need to address at the moment. Priorities people. I feel like this is a “counting your chickens before they hatch” scenario. That is, it seems awfully misguided to be discussing income tax rates today when no one can be sure if they’re still going to have a job tomorrow. Your entire opinion on the subject could be changed at any minute with the presentation of a little pink slip.   

Instead of a campaign season smothered in tax policy that tries to please every bracket of constituents (focusing, of course, on the biggest campaign donors), we need to be hearing a realistic plan for immediate implementation of painfully specific measures to get jobs back on track and the economy moving at anything other than its currently glacial pace.

4.       The Congressional Budget Office estimates that the tax cuts will only improve unemployment figures by 0.2% over the course of next year and ranks tax cuts as the least efficient way to stimulate the economy.

We can spend $900B in further attempt to continue to coax businesses and corporations into hiring and have nothing to show for it (just like the last time we tried this under Bush) OR we could be investing that money in infrastructure, education, green energy, emerging technologies, and research and have something tangible that improves the overall condition of our Country and the lives of its citizens.

5.       The prospect of the US borrowing from China to the tune of $900B over the next five years to pay for this beast gives plenty of reason for Europe and other nations to start betting against our debt.

This one gets kind of complex and extremely scary if you live and spend in American dollars. In the simplest way I can explain it, the dollar is currently the world reserve currency. Since oil and other various commodities are bought and sold with dollars, foreign governments are basically forced to retain a large amount of currency in US dollars. Usually this currency is used to buy US Treasury bonds, thus their reserve is loaned to us for interest. We use these funds to help cover our huge deficits. That's why traditionally we can get away with huge deficits on a scale that would bankrupt most other nations. If the world moves to the euro, as China, Iraq, and Venezuela have spoken about in the recent past, then everyone would sell off these bonds and our economy would collapse. If conservatives are really concerned about this country moving the way of Greece, this right here is precisely how it will happen.

Following the financial apocalypse would be massive dollar devaluation, skyrocketing inflation, and general credit markets chaos.

As always, BIG thanks to all of my generalized sources:

©2010 Tax Foundation, www.mytaxburden.org,  The Congressional Budget Office http://www.cbo.gov/aboutcbo/, C-SPAN http://www.c-span.org, The Committee for Economic Development http://www.ced.org, and others Im sure.