The tax reductions implemented by the “Jobs and Growth Tax Relief Reconciliation Act of 2003” are set to expire at the end of 2010.
In the past I have consistently said they should be left to expire in order to reduce the budget deficit. I’m now going to modify that position.
The economy is too fragile to suddenly remove that much spending power from Main Street and give it to Washington D.C. However, not all of the tax cuts benefitted the general population so here is what I would do.
Increased Child Tax Credit
I would leave this in place.
Marriage Penalty Relief
I would leave this in place as it was an unfair situation in the previous tax code. We should be encouraging marriage and not discouraging it.
Increased Alternative Minimum Tax Threshold
I would leave this in place as it benefits the lowest income households.
Capital Gains and Qualified Dividends Reductions
I would leave these in place. This is not the time to begin discouraging capital investment. Yes I know that this primarily benefits the rich, but I think it would be risky to repeal it.
Tax Rate Adjustments
Ok folks, you knew this is where it was coming. I would leave the reductions in the lowest four brackets in place and return the two upper brackets to the 2001 levels raising them from 33% to 35.5% and from 35% to 39.1% respectively.
I think this leaves the adjustments made out of fairness in place, it leaves the investment incentives in place and it leaves the income most likely to be spent locally in place but it increases the rates, and therefore hopefully the revenue, where it will probably least be felt.
In parallel, the federal government needs to consider how it can reduce expenditures without causing wholesale layoffs. This can’t happen all at once as the shock to the economy would be too great but it has to start happening and there is no time like the present.
Withdrawing from Iraq and Afghanistan would be a pretty good start and then I would slash marginal programs in the Department of Education and in the Department of Energy.
At the same time, Congress needs to SERIOUSLY work out a reform of the tax code. Not only does the growing disparity in wealth and income need to be curtailed, taxes need to focus more upon consumption and less upon earnings.
That’s not to say excess income shouldn’t be taxed. It should. But I’d like to see income taxes not start until earnings exceed a number beyond what we all need to live reasonably comfortably.