Out of Control Policy Blog

New at Reason: Tax Policy Manipulation

I have a new piece published this week here at Reason.org looking at the arguments behind the president's and the GOP's tax ideas:

In the current debate over whether or not to extend the Bush-era tax policies there are three key questions. Would letting the tax law expire would be a return to normal or a tax hike? How would the policies impact the economy and recovery? And what’s the purpose behind letting them expire or cutting taxes?

To start, people and businesses have been working with the current tax structure when writing their yearly budgets for nearly a decade. Business plans are designed to function best in the current paradigm. So, at the very least, allowing the current tax laws to expire will feel like a tax hike to many.

A tax increase, real or perceived, would have a negative impact on economic growth. From unemployment to housing to Gross Domestic Product growth, nearly every economic indicator has been trending downward in the recent months, has flatlined, or has a dismal outlook for 2011.

The White House wants to bump up the tax rate in order to help pay down the deficit, believing an increase will create a net increase in revenues. Conservatives argue that increasing taxes would derail the recovery by slowing economic growth and disincentivizing businesses. But both sides want to use taxes as a means of generating a recovery—which shouldn’t be the purpose of tax policy.

Here is the rest of breakdown of positives and negatives the various tax policy ideas floating around.

Anthony Randazzo is Director of Economic Research


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