My two cents on the tax cut deal:

by James Johnathan

First, let’s start off with the president’s statement on the overall presumption of the effect and consequence of this tax break issue. In a press briefing, today, President Obama said, “Make no mistake, allowing taxes to go up on all Americans would have raised taxes by $3,000 for a typical American family and that could cost our economy well over a million jobs.” Ok, now that we have established the presumption of the overall effect from President Obama, it’s time to read in between the statements of this actual package and what it means for us. Once we establish that, then we can develop our opinion/view of whether we agree or not and whether anyone else should offer up an alternative. In the package, it mentioned that it would extend the Bush Tax Cuts for those making above 250 grand a year, give businesses another tax break, extend unemployment benefits for 13 months, reduce payroll taxes for employees, and keep the tax credits for students going to college.

First, of course, is the temporary extension of the Bush Tax Cuts for everyone, including those making above 250 grand a year; let’s analyze this part. As we know, this is part of an Top Marginal Tax Rate issue that we have heard about for a long time, now. There have been many assumptions about how this effects us or what this even means. First, it’s important to know that the Top Marginal Tax Rate is what it is; it’s how much the top percent of our country pays in their income taxes. Now, the part to where the debate seems to be centered; how this effects families in America, as a whole. I believe the best way for us to get a grasp on how this effects us Americans, as a whole, is to look at some history, regarding this subject. Here is a link that gives the Top Marginal Tax Rate from 1913-2003. If you know your history, apply how bad or good the economy was to the tax rate and year seen on this link.

Now, let’s analyze the next part of the tax deal, here, and that would be tax cuts to businesses. Any of us, by now, have worked in a business or studied how businesses work in Econ 101. Business, when they try to drive a profit, need money to do so. One way they get the money to do so is to get tax breaks. They use those tax breaks to buy their products they intend to sell; in other words, they need a tax break to have a strong supply side. However, to get a strong demand side, businesses need to have customers to buy their products. To have a strong demand side, you have to have a strong supply side. If a business can’t produce a strong supply side, to get their demand going, they can’t make it very far, at all. Here is a link to explain that.

Now, let’s talk about the extension of unemployment benefits in the package. As we know, the extension be a time span of 13 months. However, we won’t be able to have a true discussion over this, until we know exactly what we’re talking about, regarding unemployment insurance. First of all, it’s important to mention that unemployment insurance is simply defined as a type of insurance workers pay into and, if and/or when they lose their job, they get paid certain benefits from it. There has also been discussion on how we can prevent “free riders” from scamming the system. Unfortunately, that is impossible to prevent, and, if done, it will hurt the majority of those who really do need the benefits paid out, in order to make ends meet; you cannot pick out just one person and catch him or her. Next, there has been talk about how effective this is to the economy. Approximentally $1.92 is generated in economic activity for every dollar spent on unemployment benefits. Here is a link to explain that.

Now, let’s see what this reduction of payroll taxes include. First of all, the question of what are payroll taxes? It consists of two different types of taxes. The first one being the amount an employer is required to withold from an employees paycheck. The next one being a tax that is paid from the employer’s own funds and related to hiring a worker, which links to an employees pay. An reduction of payroll taxes would increase the amount that both the employer and employee have in their pay and reduce the amount they have to sacrifice from their original gross income. In short, it has an positive effect on the individual worker, employer, and the economy, as a whole. It will go from 6.2% to 4.2%.

Now, let’s analyze the part where it says that it will keep the tax credits for students in college. As we know, education is becoming more and more expensive, and without help from outside sources, it’s extremely difficult to get an good and decent education. It requires the help of scholarships and aid from parents. However, that, itself, is not enough, most of the time, so that’s where tax credits are helpful, here. Again, this deal will keep those tax credits for college students. During this time of recession, it’s important that we keep those in place or else a lot of students will either not be able to go to college or graduate with a lot more debt at hand. Here is a link that explains what tax credit I mean, here.

Now, to conclude this response, it’s also important to mention that the tax deal does include a reduction in the estate tax as well; it’ll put it at 35%. According to an explanation by CNN, here is how that is put. “The estate tax — currently scheduled to return in 2011 to a top rate of 55% along with a $1 million exemption — would instead come back with a lower top rate of 35% along with a $5 million exemption.” Now, to put that in effect with everything else I just talked about, here, I’ll give my personal opinion of this tax deal. To be honest, with the total cost of this package being at $800 billion, with a good portion of this will be tax breaks. A total of $458 billion dollars; “$383 billion for lower and middle class Americans plus $75 billion for individuals making more than $200,000 a year and families making $250,000 or more.” With all of that information gathered, this does not sound like it’s a gold type of package; I consider it as an package to help the economy, short term. The part I don’t agree with is the $75 billion to the wealthiest Americans and the reduction of the estate tax. In short, there are some good parts in the package, but, at the same time, it’s not the best way to stimulate the economy. We’ll see what happens in the House and Senate with this. Have a great night to all of you.