Yesterday, President Obama made a speech in Cleveland, Ohio discussing his support for his administration’s and the majority of Democrats in Congress’s plan to let the top tier Bush-era tax cuts expire while preserving the tax cuts for those Americans making between 200,000 and 250,000 dollars a year. The tax rise on the rich will include various other rises on taxes dealing with capital gains and savings in addition to the rate hike on personal income. During his speech, the President also detailed that there would be new credits for businesses to write off their capital expenditures on new equipment and facilities and a new government stimulus to fund new infrastructure projects (more on this topic in another article produced today). He also took the time to make a swipe at Republicans, especially House Minority Leader John Boehner, about how there proposals to keep the cuts are part of a policy that brought us to financial ruin. Mr. Boehner responded that if the President wants economic growth, he had better keep the tax rates as they are. He continued on by saying that spending must be curtailed as well. However, the Republicans are not alone. Many Democrats including Northern Virginia’s own Gerry Connolly have requested the President keep the cuts temporarily not only to spur economic recovery but also to allow them to keep their jobs in a tough election year. It remains to be seen if Obama will take heed or ignore the warning of his opposition and his fellow party members.
The debate continues despite the fact that we have been through this before. When taxes are raised, two things happen. The first is that tax evasion goes up and people make determined efforts not to pay the taxes at the desired rates. Rather, they look for the loopholes to transfer them to a position where they are either not taxed or less so. The other is the fact that this money is going to be taken out of the private sector and into government coffers, where it really doesn’t produce the number of jobs that money was truly capable of. Another problem is that the chief executive’s decision as to where to tax is ridiculous. The threshold of 200,000 dollars is not going to fly in the prosperous areas of the country. Being that the rich, who are already soaked with taxation, will simply make effort to save or spend their money on themselves. This is counterproductive to the goal of them investing the money in new jobs and ventures, which would get our markets back on track. Furthermore, the tax credits for business are rubbish. The credits are only for machines and workspace. Business owners will simply automate their production and administration systems being there is no incentive or tax grant for investing in human capital. Productivity will go up but a large number of new jobs will not. Finally, this President has shown his complete ineptitude when it comes to political strategy. By his intransigence to take a more pragmatic approach on this issue, he will lose his edge in the legislature and his presidency all for some points with populist progressives and trade unions.