This House Would Remove Bush Tax Cuts For The Wealthy

Maintaining Bush tax cuts would cost the government $680 billion in revenue over the next ten years according to Paul Krugman.

Given the downgrade in the U.S. credit rating by some credit agencies, it seems prudent to choose to roll back at least some of these cuts in order to please those agencies and convince them that the U.S. is taking serious action to tackle its debt. If this is the case, then they are likely to upgrade or maintain the U.S. credit rating. This is beneficial for the U.S. as it means that in the future it has smaller repayments to make on its current debt and can more readily take on debt in the future.

Further, given that the rich spend a smaller percentage of their money than the poor on consumption, an increase in taxes for the rich will firstly not cause a significant downturn in consumption and secondly, if spent responsibly by the government, will lead to further growth in the future which might cause the government to be able to recoup the money that it spends through higher tax revenue from a growing economy in the future.[1]

[1] Krugman, Paul “Now That’s Rich.” New York Times. 22/08/2010 http://www.nytimes.com/2010/08/23/opinion/23krugman.html

Under current economic circumstances, the deficit is bad, and a downgrade of the credit rating has bad effects. However, stimulation of the economy during a recession is needed more.

If the economy is stimulated through lower taxes, it might cause it to recover faster and move into a boom period earlier. If this is the case, then even if the lower credit rating results in higher repayment costs, the economy returning to growth earlier will mean tax revenue is higher earlier. If that is true then it is possible that the government will recoup the cost of the tax cuts later on with higher growth.

Secondly, the extension of Bush tax cuts for a two year period is unlikely to have any lasting impact on such a large deficit. Whilst the rich have a lot of money, it is entirely within their power to use accountants and other means such as offshore bank accounts to ensure that they do not bear the full brunt of the change. Bush tax cuts caused more rich people to keep their money in the U.S. This meant that despite the lower taxes, the greater amount of money kept in the U.S. meant that overall there was a net profit from the change.[1]

[1] Twerkel, Amanda “Cantor Admits Extending Bush Tax Cuts Would “Dig The Hole Deeper on the Deficit – But He Doesn’t Care.”” Think Progress. 02/08/2010 http://thinkprogress.org/politics/2010/08/02/110994/cantor-bush-tax-cuts/

The tax cuts that were created under a Republican government can be strongly linked with the Republican power base. The Republican party relies on a relatively small number of very rich and powerful donors. A tax cut for these people often leads to an increase in funding for the Republican party. Republican representation among the other classes generally comes from other conservative policies as opposed to one fiscal policy.

Further, there is an attitude in the U.S. among many poorer communities that tax regardless of the actual purpose is a bad thing. As such, the Republicans can often reduce taxes for the wealthy without significantly harming their voting base among other communities, despite the fact that these changes often harm poorer communities a great deal.

This means that implementation of the tax cuts was due to a political system that focuses on parties winning elections as opposed to doing what is best for America as a country. As such the system forces the Republicans to pander to the rich for funding and this leads to a worse situation for the country overall. Given that this is true, the tax cuts are unjust and should be removed.[1]

[1] Creamer, Robert “Why Congress Must End Bush Tax Cuts for the Rich.” Huffington Post. 28/07/2010/ http://www.huffingtonpost.com/robert-creamer/why-congress-must-end-bus_b_661872.html

The American system is one that can be changed with a popular vote. Further, the competition between the two parties and the bid to be re-elected causes them to make decisions that are good for the country so that they are credited for that by the people.

Whilst the process does have flaws, it is illegitimate to call decisions made by the process unjust when the process is a clear process that can be accessed by everyone and can be changed if results are seen to be consistently unjust.

If the Republican voting base acts in the way that the proposition suggests it might simply be that the Republican voting base dislikes tax increases for reasons the proposition has not considered, such as a slippery slope effect where tax increases for the rich eventually make it more acceptable to increase taxes for the poor.

The removal of tax cuts for the rich will help create greater equality in the U.S.

Firstly it can do this by direct means, taxing the rich to a greater extent than is currently done would mean, obviously that the rich have less money and are thus more equal to the poor in income. However, further to this, money gained from such tax cuts that is not being reserved for deficit reduction can be redistributed to the poor in order to allow them to progress further in society.

Income inequality within the U.S. is significantly worse than in most other Western liberal democracies. It often leads to problems of the poor feeling disenfranchised within a society where they feel that the rich have all the influence. Poverty can lead to crime, motivated either by want and pure physical need, or by a distorted sense of entitlement fostered by consumer culture. A lack of parity in an economic system may be interpreted as justifying participation in crimes with an economic component, such as drug dealing, fraud or involvement with organised crime.[1]

[1] Garofalo, Pat, “Stephen Moore Calls for raising taxes on the poor in order to pay for tax cuts for the rich.” Think Progress. 08/07/2010. http://thinkprogress.org/politics/2010/07/08/106661/moore-taxes/

As is mentioned in argument two of the opposition, if tax increases for the rich cause them to leave the country then it is entirely possible that this will lead to even less parity between those left behind and the poor who have to make do with even less tax revenue through redistribution.

Further, the rich are often the people who provide work for the poor through investments in enterprise and new products. Given that this is true, lower taxes for the rich often benefit the poor by allowing the rich to invest more and take more risks with their money. This often leads to innovations and the creation of new goods and services that often the poor may buy into and this allows them to improve the quality of their lives in the long run.[1]

[1] Ortman, Johnathan, “Tax Incentives for Entrepreneurship and Innovation.” Entrepeneurship.org http://www.entrepreneurship.org/en/policy-forum/tax-incentives-for-entrepreneurship-and-innovation.aspx

Maintaining Bush tax cuts would cost the government $680 billion in revenue over the next ten years according to Paul Krugman.

Given the downgrade in the U.S. credit rating by some credit agencies, it seems prudent to choose to roll back at least some of these cuts in order to please those agencies and convince them that the U.S. is taking serious action to tackle its debt. If this is the case, then they are likely to upgrade or maintain the U.S. credit rating. This is beneficial for the U.S. as it means that in the future it has smaller repayments to make on its current debt and can more readily take on debt in the future.

Further, given that the rich spend a smaller percentage of their money than the poor on consumption, an increase in taxes for the rich will firstly not cause a significant downturn in consumption and secondly, if spent responsibly by the government, will lead to further growth in the future which might cause the government to be able to recoup the money that it spends through higher tax revenue from a growing economy in the future.[1]

[1] Krugman, Paul “Now That’s Rich.” New York Times. 22/08/2010 http://www.nytimes.com/2010/08/23/opinion/23krugman.html

Under current economic circumstances, the deficit is bad, and a downgrade of the credit rating has bad effects. However, stimulation of the economy during a recession is needed more.

If the economy is stimulated through lower taxes, it might cause it to recover faster and move into a boom period earlier. If this is the case, then even if the lower credit rating results in higher repayment costs, the economy returning to growth earlier will mean tax revenue is higher earlier. If that is true then it is possible that the government will recoup the cost of the tax cuts later on with higher growth.

Secondly, the extension of Bush tax cuts for a two year period is unlikely to have any lasting impact on such a large deficit. Whilst the rich have a lot of money, it is entirely within their power to use accountants and other means such as offshore bank accounts to ensure that they do not bear the full brunt of the change. Bush tax cuts caused more rich people to keep their money in the U.S. This meant that despite the lower taxes, the greater amount of money kept in the U.S. meant that overall there was a net profit from the change.[1]

[1] Twerkel, Amanda “Cantor Admits Extending Bush Tax Cuts Would “Dig The Hole Deeper on the Deficit – But He Doesn’t Care.”” Think Progress. 02/08/2010 http://thinkprogress.org/politics/2010/08/02/110994/cantor-bush-tax-cuts/

The tax cuts that were created under a Republican government can be strongly linked with the Republican power base. The Republican party relies on a relatively small number of very rich and powerful donors. A tax cut for these people often leads to an increase in funding for the Republican party. Republican representation among the other classes generally comes from other conservative policies as opposed to one fiscal policy.

Further, there is an attitude in the U.S. among many poorer communities that tax regardless of the actual purpose is a bad thing. As such, the Republicans can often reduce taxes for the wealthy without significantly harming their voting base among other communities, despite the fact that these changes often harm poorer communities a great deal.

This means that implementation of the tax cuts was due to a political system that focuses on parties winning elections as opposed to doing what is best for America as a country. As such the system forces the Republicans to pander to the rich for funding and this leads to a worse situation for the country overall. Given that this is true, the tax cuts are unjust and should be removed.[1]

[1] Creamer, Robert “Why Congress Must End Bush Tax Cuts for the Rich.” Huffington Post. 28/07/2010/ http://www.huffingtonpost.com/robert-creamer/why-congress-must-end-bus_b_661872.html

The American system is one that can be changed with a popular vote. Further, the competition between the two parties and the bid to be re-elected causes them to make decisions that are good for the country so that they are credited for that by the people.

Whilst the process does have flaws, it is illegitimate to call decisions made by the process unjust when the process is a clear process that can be accessed by everyone and can be changed if results are seen to be consistently unjust.

If the Republican voting base acts in the way that the proposition suggests it might simply be that the Republican voting base dislikes tax increases for reasons the proposition has not considered, such as a slippery slope effect where tax increases for the rich eventually make it more acceptable to increase taxes for the poor.

The removal of tax cuts for the rich will help create greater equality in the U.S.

Firstly it can do this by direct means, taxing the rich to a greater extent than is currently done would mean, obviously that the rich have less money and are thus more equal to the poor in income. However, further to this, money gained from such tax cuts that is not being reserved for deficit reduction can be redistributed to the poor in order to allow them to progress further in society.

Income inequality within the U.S. is significantly worse than in most other Western liberal democracies. It often leads to problems of the poor feeling disenfranchised within a society where they feel that the rich have all the influence. Poverty can lead to crime, motivated either by want and pure physical need, or by a distorted sense of entitlement fostered by consumer culture. A lack of parity in an economic system may be interpreted as justifying participation in crimes with an economic component, such as drug dealing, fraud or involvement with organised crime.[1]

[1] Garofalo, Pat, “Stephen Moore Calls for raising taxes on the poor in order to pay for tax cuts for the rich.” Think Progress. 08/07/2010. http://thinkprogress.org/politics/2010/07/08/106661/moore-taxes/

As is mentioned in argument two of the opposition, if tax increases for the rich cause them to leave the country then it is entirely possible that this will lead to even less parity between those left behind and the poor who have to make do with even less tax revenue through redistribution.

Further, the rich are often the people who provide work for the poor through investments in enterprise and new products. Given that this is true, lower taxes for the rich often benefit the poor by allowing the rich to invest more and take more risks with their money. This often leads to innovations and the creation of new goods and services that often the poor may buy into and this allows them to improve the quality of their lives in the long run.[1]

[1] Ortman, Johnathan, “Tax Incentives for Entrepreneurship and Innovation.” Entrepeneurship.org http://www.entrepreneurship.org/en/policy-forum/tax-incentives-for-entrepreneurship-and-innovation.aspx

Whilst the rich spend proportionately less of their income than the poor, the rest of their income is often invested in other areas and financial vehicles, boosting the economy in both the short and long term. In the short term this money allows businesses to take more risks owing to a greater pool of money to offset the risk, alongside lower interest rates. In the long term, these risks often lead to innovations that help the economy overall.

In increasing the tax burden on the rich, the spending and investment that wealthy individuals partake in is cut off, preventing these areas of the economy from growing. Recessions and recession prevention are often reliant upon public perception of an economy’s general health and the extent of its exposure to less stable economies. Due to this feedback mechanism, it is possible, therefore, that an unfounded belief that tax rises could obstruct economic growth might cause panic amongst the media and the populace. A recession might come about through the mere expectation that there will be a recession.

In fact, given that the majority of the media is controlled by the rich, it is within their best interest to report that there will be a crisis if there is a tax increase so that they can claim the policy was at fault in the future.[1]

[1] Vaughan, Martin and Mckinnon, John, “Democrats Dissent on Bush Cuts,” Wall Street Journal http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748703954804575381501862552246.html

As mentioned, tax cuts for the rich offer the least direct stimulus owing to the small percentage of their income that the wealthiest Americans spend on consumption. Often what is taxed is money that simply sits in bank accounts accruing interest. Given, then, that the super rich are a tiny portion of the population, despite their wealth, the immediate change the policy will have on the economy is fairly negligible.

Opposition may talk about investment in businesses, however the risks that businesses take and their benefits are only truly reflected in long term statistics, which are irrelevant in the case of recession prevention as in a few years it is likely that there will not be fears of another recession.[1]

[1] “A Real Debate On Taxes,” New York Times, 23/08/2010 http://www.nytimes.com/2010/08/24/opinion/24tue1.html

A number of small businesses are owned by individuals who pay taxes as individuals. However, being small business owners they often earn enough to put them in the highest tax brackets. Given that this is true, the tax rate that these business owners would face following the abolition of the Bush tax cuts would be a rate higher than most big business. It seems unjust that small business owners would pay rates of tax at 36% or 39.6% given that businesses such as Goldman Sachs pay lower tax.

Further, the expiration of a tax cut for these small businesses means that the owners will often project less personal gain from projects that the business might undertake. A simple example (for use in a debate) is of a project that costs $100 to invest in and has a 10% chance of success, returning $1100. A tax rise could theoretically cause the return for the owner to fall from $1100 to $1000. This means that now a project that would have been profitable is no longer so and thus the owner won’t risk taking the project up.

This means that fewer projects are taken up in the thousands of small businesses that exist throughout the economy. As such, excess taxation stifles the innovations that small businesses often provide,costing the economy  a great deal more in lost profits and lost market-share than is returned in tax revenue in the long run.[1]

[1] Murdock, Deroy, “Halt Reckless Spending and Extend Bush Tax Cuts,” Deseret News, 26/07/2010 http://www.deseretnews.com/article/700050783/Halt-reckless-spending-and-extend-Bush-tax-cuts.html

Firstly, the harm to small business from such tax cuts could easily be mitigated by providing some measure of exception for small business owners. The U.S. already provides subsidies for small businesses that show signs of innovation and as such it seems logical that another exception could be added to prevent harm to small businesses.

Further, less that 2% of tax returns citing small business revenue come from the top two tax brackets. Most small business owners simply aren’t part of the top income bracket and further most investors in the top income brackets do not rely on small business revenue as their primary source of income. The harm should this policy go through without exception is much smaller than portrayed by opposition.

Further, the focus on small business is also a result of a “supply side” economic policy that has failed. Whilst the Bush system focused mainly upon supporting the private sector in order to create jobs, it has emerged after eight years to have had almost no effect on the number of Americans being employed, with most changes coming from government hiring. Small business makes a contribution to the economy, but nowhere near the level that opposition need for the argument to hold water.[1]

[1] Gale, William, “Five Myths About the Bush Tax Cuts,” Washington Post, 01/08/2010 http://www.washingtonpost.com/wp-dyn/content/article/2010/07/30/AR2010073002671.html

As mentioned in the previous arguments, the expiration of Bush tax cuts would firstly cause investors and people in the upper brackets to resort to tax avoidance methods, such as placing money in foreign accounts and using legal lacunae to reduce their tax liability.

However in a world where the upper management of most businesses can be handled from other countries, it is prudent for those facing higher taxes in the U.S. to move away to avoid them. Most countries in the U.A.E, for example, have incredibly low tax rates for the entire population.

The reason that many American taxpayers in upper brackets have not moved away to take advantage of this is because the tax cuts and the Republican government have kept them satisfied enough that there is no reason to go through the inconvenience of moving.

The removal of the tax cuts could easily provide this impetus owing to the fact that they might result in further higher taxes for the rich down the line. As such, tax increases of this nature could cause the rich to leave the country and cease paying tax altogether.[1]

[1] Bruner, John, “Where America’s Money is Moving,” Forbes, 14/06/2010 http://www.forbes.com/2010/06/14/where-the-rich-are-moving-business-beltway-rich-migration.html

There are a number of social ties that the rich have to the U.S.A. with many of them having inherited wealth or having families in the U.S.

Moving to another country is inconvenient as it leads to the removal of all of these social ties, further the actual cost of moving is often enough to prevent them from doing so.

Further, many rich Americans have an attachment to America itself, either as a land where their parents prospered or as a land where they managed to earn their own wealth. As such, there are emotional ties to the country. Many have political influence in the U.S. which they would be unable to take advantage of should they leave the country.[1]

Finally, it should be noted that states which routinely impose extremely low rates of personal income tax, or which refrain from taxing the bonuses paid to businesses’ senior managers obtain the majority of their state funding from natural resources revenues. Saudi Arabia is one of the largest and most active oil extractors and exporters in the world. It can make up for shortfalls in personal tax revenues by controlling the price and supply of the oil that it drills.

[1] Confessore, Nicholas, “Taxes Not Seen as Making Rich Flee New York,” New York Times, 18/03/2009 http://www.nytimes.com/2009/03/19/nyregion/19leave.html?_r=1