Tax battle

This blog post is designed to discuss the implication of the tax battle facing Washington today. Let's be blunt about one thing, extending the Bush tax cuts will not save the economy, but it also won't make it worse. The reality is that there is much left to do before the economy comes roaring back but the extension of tax cuts, providing that it is done quickly, will give business some stability to know what they owe and not owe.

The other aspect is that for many investors, do we sell before the end of the year when the capital gains tax goes up to 20% from 15%? If investors are uncertain that the capital gain tax will remain at 15%, they will begin selling off their investments to take advantage of the lower rates. This could bring short term havoc on the market, producing a massive sell off of stocks.

Extending the tax policy, even for a short period time, will stabilize the economy and give businesses some certainty over the next few years. This could lead to some additional hiring and certainly help many companies, large or small, increase their profit margins. Failure to extend the present law will lead to economic slowdown or an economy still sputtering.

The negative is that there is much left in the Obama agenda that will continue to affect the economy negatively. The implementation of Obamacare will continue to raise the cost of business, thus retarding the growth of employment. FCC is prepared to impose a version of net neutrality and treat the internet as a public utilities and this will slow down one of the fastest growing points of our economy. There is the threat that the EPA will impose its version of control over the economy as it attempts to sneak cap and trade through regulatory control. So extending the Bush tax cuts will not produce a robust economy since there are enough bad policies left to retard the economy.

The battle over the tax cuts begins the opening gambit of the 2012 election, and the debate of two different visions of our economy. One is a statist theory that begins with government is the creator of wealth and needed to increase its impact in our lives. The opposite view is that market supported by entrepreneurs is what creates wealth and government. The recent debate over the Bush tax cuts merely highlights those differences.



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