GOP Needs to Be Reasonable on Tax Cuts Now, but Fundamental Changes in Gov’t Need to Happen Too!

With the GOP’s recent wins in the US House of Representatives, those who promised change in 2008 are definitely going to see it come 2011.  But between now and January, many American’s are also going to see a change in their tax rates if Congress doesn’t act and act soon.

Why?  Many of the Bush-era tax cuts are set to expire for the 2011 tax year.  That means many Americans (not just the “rich”) will be paying more, including those making below $34,550 a year.

(I won’t post here my complaints about why democrats have made this a priority only after losing badly in November.  Heck, they’ve had two years and everyone knew it was coming.  But that’s for another day)

So it would seem reasonable, especially during an economic recession, that extending such cuts would be a no-brainer.  After all, leaving money in the hands of the people to spend is a better option than collecting the money in taxes and letting the government spend it (Reaganomics vs. Keynesians).  Right?  Well, yes and no I guess.

Republicans as expected are fully behind the supply-side theory – cut taxes to drive economic expansion.  No cut is too much, no income is too high. 

Democrats are on board too - at least for those making $250k or less (they almost have to be after President Obama “promised” no tax increases for that segment of the population).  But they don’t believe a multi-millionaire will miss a few percent of that vast fortune.  In other words, – they can “afford” it.  Now the battle begins.

How much income is from small business?  Don’t small businesses create most of the jobs?  Won’t a tax increase on the “rich” hurt job growth?  What about the deficit?

I offer this – GOP beware, but DC wake up!  Don’t get me wrong.  I’m all for extending the cuts.  Ideally, I agree that those cuts will help more than they hurt and it’s an overall good strategy that has worked before and will work again.  But I also think the republicans need to concede that at some point (maybe it’s a $1 million, maybe it’s more), imposing a “small” tax increase on some in the short-run may be necessary to get this compromise done.  I don’t think there is much to be gained by republicans drawing a line in the sand that such cuts are an all-or-nothing deal.  That could very easily backfire and hurt them in 2012.

But I also think that all of DC, all parties included, need to understand that the country can no longer afford to spend more than we make (common sense to me, but not politically rewarding to those career politicians we send there.)  We’re already facing unprecedented debt.  (If it wasn’t for low interest rates, our debt would be even worse.)  Without changes in programs at all levels – even those once considered off limits – our country will dig a debt hole so deep that no level of taxation will ever fill it.

Changes in defense, social security, education, medicare, medicaid, and others MUST happen.  Unfortunately, we’re all going to have to suffer to fix it.  But if we don’t act now, I’m afraid the fallout will be even worse.

So get the darn tax cuts extended, get past the bickering, and know that the tax-cut battle is only a small skirmish in a much bigger battle that we have no option but to win.