I’ve been a little out of pocket over the last couple of days so guess you could say I’m playing a bit of catchup with this post.
I suspect most of you read Newt Gingrich’s Wall Street Journal Op Ed on middle class tax cuts:
Let’s Have a Real Middle-Class Tax Cut
Obama’s tax credits won’t stimulate the economy.
By Newt Gingrich and Peter Ferrara, Wall Street Journal, November 20, 2008.
President-elect Barack Obama is right: America needs a real and meaningful middle-class tax cut. Unfortunately, despite the rhetoric, that is not what his proposals offer.
Mr. Obama’s tax plan includes creating or expanding nine or more federal income tax credits mostly focused on low- and moderate-income earners, with an estimated cost of $1.3 trillion over 10 years. These tax credits are provided for certain social purposes, such as child care, health care, education, housing and retirement. Buried amid these is Mr. Obama’s purported tax cut for the middle class.
For the bottom 40% of income earners, who pay no federal income taxes on net today, these refundable income tax credits will not reduce tax liability but instead result in new checks from the federal government for the targeted social purposes. That’s not a tax cut. It’s welfare.
These tax credits will do little or nothing to promote economic growth because they do not reduce marginal tax rates — the rate on the next dollar of income — to provide powerful, meaningful incentives for productive activities such as investment, entrepreneurship and work. A tax credit is effectively a cash grant that can only affect incentives up to the amount of the grant. Indeed, such tax credits would likely reduce economic growth because the credits are phased out as income rises, and so effectively impose higher marginal tax rates over those income levels.
For a real middle-class tax cut, we should cut the 25% income tax rate that now applies to single workers earning $32,550 to $78,850, and married couples earning $65,100 to $131,450. We should reduce that rate down to the 15% rate paid by workers below these income levels. That would, in effect, establish a flat-rate tax of 15% for close to 90% of American workers. Read the rest…
Whilst I agree with Messieurs Gingrich and Ferrara their proposal alone isn’t going to get us out of our current economic mess. If we really want to stimulate the economy and create jobs we need to combine middle glass tax cuts with commonsense corporate tax cuts… Cutting the corporate tax from the current 35 percent to 25 or even 20 percent and drastically reducing or suspending the capital gains tax for two years would ensure that businesses – particularly small businesses have access to capital for expansion, research and development and job creation.