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Tax Cuts - Good Deal or Bad Deal

Updated on March 23, 2011

Tax cuts and the economy.

I want to bring up a recent article in the USA Today by Mitt Romney. The article is in regards to the recent extension of the Bush era tax cuts, otherwise known as the great compromise. The question is, how great of a compromise is it?

The deal features certain immediate benefits for the employed, unemployed, and employers alike. Because every American is sure to fall under one of those categories, at first glance this seems to truly be a good deal. Cutting payroll taxes for the employed, extending jobless benefits for the unemployed, and stalling tax increases for business owners. How can this be a bad deal? Well its only temporary for starters. I will agree that that temporarily extending these cuts is better than an immediate increase. However, unless these cuts are extended before 2013, taxes will increase dramatically.

I do believe in cutting payroll taxes. Employees work hard for their money and they deserve to keep more of it. There is also the obvious benefit of increasing consumer spending. In my opinion this cut should be made permanent. Then there is the question of extending unemployment benefits. This is a very controversial issue and, has been the source of many heated debates. I believe that this will only serve to discourage these individuals from seeking or taking employment, especially when they are consistently extended over long periods of time.

I think what is most important here is the idea of giving consumers some extra money vs. adding jobs to the economy and creating lasting growth. Fixing a problem temporarily or creating permanent solutions. For business owners this extension means only that they will not be facing immediate tax increases. That is great, maybe fewer jobs will be lost. What it does not do is give business owners any tangible benefit to starting or expanding an enterprise. In his article Mitt states "When entrepreneurs and employers make decisions to start or expand an enterprise, uncertainty about tax rates translates directly into a reduced propensity to invest and to hire." He goes on to say "With only a two-year extension, investors know that before their returns are realized, tax rates may be jacked up to the levels favored by President Obama."

Having a background in investment banking, I know these are very real concerns that investors and business owners have. I think what the economy needs more than anything is jobs. Sure there are many benefits to an increase in consumer spending. It may stimulate the economy temporarily, but it will not give the economy what it needs to create new jobs. Think about it this way, a hundred dollar bonus on your check may let you take your wife out to a nice dinner but, it will not let you buy that new car you have been wanting. There is a major difference there.

What we need is sustainable long term growth. We need to give business owners and investors more incentives to create new businesses and expand existing ones. This is why I agree with Mitt Romney, this is a bad deal and more should have been done. I think what this country needs now more than anything is a business person in the White House. Not another attorney politician that thinks you can solve problems buy printing money.


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