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Extend the Bush tax cuts

POSTED: March 2, 2012 7:00 a.m.


Proponents of extending the Social Security tax holiday warned of dire consequences if Congress and the President failed to extend the two-percentage-point reduction. The loudest voices argued that the average worker missing $40 in a biweekly paycheck would cause our economy to come to a grinding halt.

However, amid the hullabaloo over this tax break, few talked about what will happen when this extension expires at the end of this year. In addition to this tax break disappearing, every tax-paying American will be subject to higher taxes as a result of the expiration of the Bush-Obama tax cuts at the end of 2012.

When President Obama extended the 2001 and 2003 tax cuts 14 months ago, he declared it a “substantial victory for middle class families.” Considering that few middle class families have prospered or even improved their financial situations over the past few years, it is probably safe to say that failure to renew this tax relief would be a defeat for most American families.

But better than another extension with another deadline would be a permanent tax rate reduction for all hardworking taxpayers. Last month I introduced the “American Freedom and Opportunity Act” which will create permanent income tax brackets of 10, 25, 28, 33, and 35 percent (as opposed to 15, 28, 31, 36, and 39.6 percent, as scheduled). This will allow more money to remain in the hands of American consumers rather than at the disposal of a wasteful federal government. More economic activity often means more government revenue, not less.

In addition, this legislation will create a permanent capital gains tax rate of 15 percent. For those in the 10 and 15 percent income tax brackets, they will only have to pay a 10 percent tax rate on their capital gains. “Capital gains” may conjure up images of Wall Street, but what it should evoke is thoughts of Main Street. Small business is the backbone of the American economy, and punishing investment with higher capital gains tax rates just harms our entrepreneurs.

I was reminded of the impact of increased capital gains taxes when I hosted a town hall in Junction City earlier this month. “Joe” (not his real name) said that because of these proposed tax increases, there are seven people in Junction City he will not hire. “Joe in Junction City” is not a Wall Street fat cat; he is simply another small business entrepreneur who lives a pretty ordinary life in a pretty ordinary town in the middle of Kansas.

Furthermore, this legislation has considerable benefits for American families. It will make permanent the child tax credit of $1,000, and will continue to allow taxpayer to deduct post-secondary educational expenses.

To those who say we need more revenue to get deficits under control, one only need look at President Obama’s latest budget proposal to know that such logic is flawed. Washington’s problem is overspending. Despite a $1.9 trillion tax increase in the budget he recently proposed, the next ten years still results in nearly $7 trillion more in American debt.

To those who say that we simply need to “tax the rich” more, I ask: How much is enough? Forty percent of all income taxes come from the top 1 percent; nearly 60% of all income taxes come from the top five percent of earners. Meanwhile, about half of all Americans pay nothing in income taxes. Is this what constitutes fairness?

In a recent nationwide poll conducted by The Hill, 75% of Americans said that those in the top bracket (those earning $250,000 or more) should have a tax rate of 30 percent or less. In fact, 61% of those surveyed said the highest earners should have a tax rate of 25% or less. Polls should not necessarily drive public policy, but when this debate is fundamentally about “fairness,” the American people must weigh in on what constitutes “fair.”

Now more than ever, America needs the Bush-Obama tax cuts to be made permanent. Regardless of how the elections play out, American families and job creators need certainty now. We cannot afford to allow these scheduled tax increases to go forward and break the back of a fragile economy.

However, better than making these tax cuts permanent would be to throw out the whole tax code and start from scratch. Instead of being unnecessarily and excessively distracted by small items like the Social Security tax holiday, shifting brackets, or temporary tax gimmicks for whatever special interest wins the day, we need to be focused on the bigger picture. Fewer loopholes, reduced rates for everyone and all corporations, and a broader base would all go a long way in ensuring the most fairness for the most people – and create economic freedom and opportunity for America.
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