Tax Cuts for the Wealthy or for the Nation?

Recently debate has flared up over whether Bush’s so called “tax cuts for the wealthy” should be extended. Republicans urge congress to extend all the cuts, but the Democrats want to only extend the cuts for the bottom 98% of all income earners. Thus far, the Democrats have cast this as a choice between helping the rich or the nation. I, however, believe that extending all the tax cuts is not only good for the rich but good for the nation.

The reason most often given by Republicans for extending the cuts is that they help small businesses, for many small businesses file their taxes as individuals and thus would benefit from tax cuts to those earning above $250,000 a year. This is true, but it is often pointed out that small businesses can be helped without extending tax cuts of millions of wealthy Americans. Very few small businesses would actually benefit from this; the vast majority would remain unaffected.

However, there are far more important reasons to extend the tax cuts to the wealthy, reasons which are rarely mentioned by politicians. It is a commonplace that taxation decreases efficiency. Economic agents, even wealthy ones, will be less willing to work hard if they know the government will take a large portion of their income. An increase in government revenue will bring on a decrease in overall GDP. Thus, a decrease in taxes can cause an increase in tax revenue, and an increase in taxes can cause a decrease in revenue (the Lerner Curve). Admittedly, this is unlikely to happen, but it demonstrates that an increase in taxation is unlikely to increase tax revenue proportionally. Taxes have the unintended consequence of decreasing productivity over the entire economy.

Now under normal circumstances, correcting the deficit through more responsible tax policies would be imperative. However, we risk descending into a second recession if we tether down economic productivity with more taxes. In a recent poll, 60% of economists said that extending all the tax cuts would be the most economically sound choice. Surely, having experienced the devastating effects of the most recent recession, we should not allow our economic choices to be influenced by some infantile desire to take from the rich and give to the poor, especially since the consequences could be disastrous for the entire economy. The debate over tax cuts should not be about taking money from the greedy and lazy richest 2% of Americans. No, the debate should be about what is best for the nation. There are many strong reasons to extend the cuts, and our nation’s leaders would do well to focus on helping the nation and not punishing the wealthy.