Congress has an important decision to make before the end of the year: Extend the 2001 and 2003 tax cuts or allow them to expire and significantly raise taxes. There is never a good time to raise taxes because higher taxes always come with a steep cost: slower economic growth, fewer jobs and lower wages. To raise taxes now while the unemployment rate lingers at 10 percent is simply reckless and irresponsible.
Some like Ed Schultz of MSNBC’s the Ed Show claim that keeping the tax cuts in place won’t help the economy and create jobs. This is a fact he tried to make when I was on his show last week.
Pro-growth tax cuts such as reductions of marginal income tax rates and lower tax rates on capital gains and dividends always create jobs. But extending the tax cuts is not cutting taxes. It is keeping in place the tax code we’ve had for the last decade. As such, extending the tax cuts would not create new incentives for businesses to hire and individuals to save and invest. On the other hand, allowing the tax relief to expire would be a substantial tax increase that would destroy countless jobs.
Despite my reiterating these points numerous times, Schultz has since misrepresented my point by claiming the Heritage Foundation said “the tax cuts won’t create jobs.” This could not be further from the truth.
If Congress allows the cuts to expire, for all taxpayers or just those making more than $250,000 a year, the already anemic economic recovery will slow further. Higher taxes on top-earners will hit job creators like small businesses and investors the hardest. This will reduce job creation and lower wages.
Unless we all want the unemployment rate to linger at 10 percent or above, Congress should make permanent the 2001 and 2003 tax cuts for all taxpayers as soon as it comes back from recess. Although this would only solidify the tax code where it has been for a decade, removing the uncertainly businesses and individuals are experiencing would itself be a boon to the economy. With renewed certainty about their tax positions, job creators will get off the sidelines and start investing. A temporary extension won’t do the trick. That would only be a signal to individuals and businesses that Congress plans to raise their taxes further down the road.