The next president and Congress will face an important decision: Let the Bush tax cuts expire in 2010, keep them or make even further cuts.
If the Bush tax cuts are allowed to expire, taxpayers of all levels will face a massive tax increase. Just consider the changes identified by the Heritage Foundation:
- Tax rates will rise substantially in each tax bracket, some by 450 basis points;
- Low-income taxpayers will see the 10 percent tax bracket disappear, and they will have to pay taxes at the 15 percent rate;
- Married taxpayers will see the marriage penalty return;
- Taxpayers with children will lose 50 percent of their child tax credits;
- Taxes on dividends will increase beginning on January 1, 2011;
- Taxes on capital gains will increase, also beginning on January 1, 2011; and
- Federal death taxes will come back to life in 2011, after fading down to nothing in 2010.
The total amount taxpayers will have to fork over to the feds? Some $400 billion, the largest tax increase in U.S. history—a real bummer of a campaign theme for those running in the 2010 election.
Such an increase will, of course, put the brakes on the economy. Taxpayers will have less disposable income to invest. Plus, a rise in capital gains and dividend taxes will make investment less attractive. Indeed, taxpayers will go back to the days of seeking out any and all tax shelters, so as not to lose their hard-earned money.
But if the cuts are made permanent, the economy would likely continue to click along at between 2.5 and 3 percent real growth, and Americans would become even more prosperous.
And if the next president proposes even deeper tax cuts (along with spending reductions), the economy could hearken back to the heady 1960s, when real growth came in between 5 and 6 percent a year.
So what are the Democratic presidential candidates proposing? The repeal of some or all of the Bush tax cuts.
In effect, the Democrats have stuck a sign on their back saying to the Republican candidates “Kick Me.” The question is whether Republican candidates know a winning issue when they see it.