In a few short months, the Bush tax cuts are set to expire and if Congress doesn’t extend these tax cuts an estimated $135 billion could be taken out of the hands of the people by the government in new taxes. Adding around $1,541 in new taxes per household could break the backs of many people in an already struggling economy.
According to the nonpartisan Tax Foundation, not renewing the Bush tax cuts will represent a huge jump in taxes for the middle class. For example, a middle class family with a yearly income of $63,366 would pay around $4,964 in taxes. That is a big jump from the $3,423 that the same middle class family is paying presently. While President Obama and Treasury Secretary Geithner have insisted that they wish to keep the tax cuts for the middle class intact, they have also made it clear that they fully intend on targeting entrepreneurs and job creators with higher taxes by simply letting the Bush tax cuts sunset in 2011. With an already high unemployment rate, imagine the impact on an already struggling nation.
The problem is that putting the squeeze on the rich has never been an effective way to kick start a lagging economy. As Caroline Baum of Bloomberg has pointed out, federal revenue from GDP has remained at around 17.9 percent. That was true when the highest tax rate was 91% in the 50’s, 50% in the 80’s and 35% presently. However, now the government wants to play Robin Hood and take from the rich and redistribute that wealth to the poor and that simply does not work.
Wealthy people have certain luxuries that the poorer people do not. They can move their money; they can take risks and start a business or invest money elsewhere. They can hire people and increase their wealth while helping the people they hire build wealth in the process. The bottom line is that the wealthy person can weather a tax increase. However, when the government raises taxes considerably on someone struggling in the first place, as letting the Bush tax cuts would likely do, that person may need to go out and find a second job just to maintain his or her level of pay and still have the ability to feed themselves and/or their family.
What many people fail to realize is that all of this boils down to working harder to pay higher taxes, when the real goal should be to help people to build wealth through hard work and to invest that wealth. That is why there is a growing sentiment that the argument should stop focusing on class related tax rates and it should focus on tax relief and reform. Ideas include tossing the tax code in favor of a flat tax or even more progressive, getting rid of the IRS altogether and opting for a consumption tax. Either way, most people agree that the real problem is the government and the best way to deal with this problem is to take the issue of taxes out of their hands entirely.