EDITORIAL: Stimulating tax cuts

By | Tuesday, January 6, 2009

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The American Recovery and Reinvestment Plan that will be winding its way through Capitol Hill this week is disappointing because it doesn't include the tax breaks that Americans deserve. It doesn't include substantial tax cuts for American families, and it doesn't include necessary tax relief for corporations and small businesses. As the 111th Congress begins taking on the nation's business, the first order of business for conservatives should be to maintain the Bush tax cuts on capital gains, dividends, inheritances and individuals.

House Democrats and President-elect Barack Obama are selling their stimulus bill to Republicans with the promise that as much as 40 percent of it will be $300 billion worth of tax cuts for those who file income taxes and those who qualify for the earned-income-tax credit. What's more appealing to Democrats are the Republican-backed proposals (an estimated $50 billion) to accelerate existing write-offs for small-business losses. Small-business owners could potentially get tax rebates in this tax year for losses that have occurred over the last five. The plan would also allow small businesses to write off up to $250,000 in expenditures - a $75,000 increase above the current cap.

One concern is whether the Obama plan will loan states money for various insfrastructure programs or give money to states. In other words, will the government provide a hand up or a handout? The current $200 billion benchmark would only encourage states to keep spending instead of curbing spending and trimming their budgets to meet fiscal realities. Senate Minority Leader Mitch McConnell, Kentucky Republican, said the infrastructure funding should be given in the form of a loan to encourage states to spend it wisely and in a way that guarantees they can repay it.

House Speaker Nancy Pelosi proposes passing the massive spending bill before Mr. Obama takes the oath of office. But she is moving too quickly. There are too many details, and the public has yet to be clued in. Both Democrats and Republicans are concerned. House Majority Leader Steny Hoyer says February is a more realistic timeframe because such a broad spending plan must have full and open debate. And the speaker must not ignore Republican concerns. "Not long ago, Japan faced the same problems currently ailing the American economy," says Rep. Steve King, Iowa Republican. "Japanese policymakers believed they could rescue their economy by creating new government jobs ... Increased government spending, high taxes, slashed interest rates and bailouts only intensified Japan´s economic recession."

Our bottom line is easily discernible. Congress and the Obama White House should cut taxes directly, starting with a reduction in the top marginal tax rate of 35 percent for corporations and small businesses. In addition, they should make the Bush 2003 Bush tax cuts permanent. Isn't it a great start to a New Year when Democrats and Republicans are debating tax cuts?

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