With the lame duck session of Congress starting, the main topics have once again returned to the deficit and in relation to it, the question of what to do with the Bush tax cuts passed nearly seven years ago. At the time, the economy was moving relatively smoothly, though economists such as Peter Schiff would argue differently. However, for the first time in decades the federal budget was balanced by congressional Republicans and President Bill Clinton in the 1990's, passing on those savings to President Bush.
That is not to say that United States was debt free, it was simply balanced for several years. It took in more revenue than it spent on expenses, simple economics. Now, it gets tricky in today's age with the federal deficit now at the time of this article is around $1.3 trillion, and as both sides, particularly the new Tea Party, elect congressmen. With the economy and unemployment being the top domestic issues facing Americans, the first serious deficit plans are being drafted, including the argument of what to do with the Bush tax cuts.
The tax cuts as mentioned before in specific are taxes on household incomes, with the main fight in both chambers of congress being whether to make the tax cuts permanent, to let them them expire by the end of 2010, or to let only those making over $250,000 annually expire. You can visit here for additional details related to the capital gains and dividend taxes, however for this article we will only examine the main provisions. Republicans argue that the American people should not suffer more taxes due to the poor economy, and that tax cuts assist in job growth claiming once again the trickle down theory will be in effect. Democrats are mostly on the same page with this reasoning, however wanting to only let the taxes over $250,000 expire and use the money obtained to tackle the federal deficit.
This sounds all nice and neat but this issue cuts at the core ideological beliefs of both parties, causing further animosity between them. Furthermore, the Bowles-Simpson Committee released their first draft of a long term solution to the ever increasing federal deficit, bringing harsh criticism from both sides of the aisle. The plan brings multiple cuts and tax increases all across the board, ranging from federal and state aid, military, medical, and income taxes, with nothing being left unscathed. With that, one of the largest items that is being debated is what to do with the Bush tax cuts as mentioned before, which would save anywhere between $100 billion to $300 billion by the year 2030 depending on what tax bracket level expires. President Obama seems to be working out a compromise on the issue, with the lame duck session of Congress ending in several weeks.
Already this has started extensive talks through multiple channels and blog articles of what to cut and what to tax. For this writer's opinion, we must let the income tax cuts for those making $250,000 and more expire by the end of the year, simply to avoid cutting spending to more controversial items such as medicare and social security. Not that those items should be exempt, but capping medicare growth to just 1% for every year starting in 2013 may be too drastic and do more harm than good. Along with this, it's absurd to think that these low income taxes create jobs. If that was the case then we wouldn't have high unemployment, since the rates have remained unchanged since 2003.
In addition, the military budget needs to be adjusted, which has caused the Republican leadership to be split on the issue as well. The most painless way is to simply withdraw noncombat armed forces around the world in the United States 130+ world military bases and also shut down facilities as well related to them, saving at least $50 billion by 2030. With that, military personnel in Iraq and Afghanistan should be gradually recalled as well, which planned to be in the final stages by 2015. The federal government itself should be reduced with a 5-10% pay cut for federal employees as well instead of laying them off, since the unemployment numbers are high enough already. Foreign aid should also be drastically reduced; however, that is a personal stance of mine, considering I question its overall effectiveness for the cost.
I won't go into every detail of what should be cut and what should be taxed, though the New York Times has an excellent interactive graphic and article related to the issue, just to show how many tough decisions will be made in the coming months. However the time to act is now considering the federal deficit has been on the back burner for a while now, and if the Tea Party should get credit for anything, it's for bringing the issue to the limelight. The blame is not for any one party, though both are guilty for reckless spending and poor ideas, from the rampant defense budget propped up by Republicans during the Bush years, to the Democrats high level spending on domestic programs with little supervision.
The Bowles-Simpson plan is just the first draft of a cohesive deficit reduction program which will go through many revisions in the future. Perhaps it's a good thing that both sides disagree on the plan, can rest assured that the pain will be shared, and is not simply a partisan plan aimed at one party's destruction.
That is not to say that United States was debt free, it was simply balanced for several years. It took in more revenue than it spent on expenses, simple economics. Now, it gets tricky in today's age with the federal deficit now at the time of this article is around $1.3 trillion, and as both sides, particularly the new Tea Party, elect congressmen. With the economy and unemployment being the top domestic issues facing Americans, the first serious deficit plans are being drafted, including the argument of what to do with the Bush tax cuts.
The tax cuts as mentioned before in specific are taxes on household incomes, with the main fight in both chambers of congress being whether to make the tax cuts permanent, to let them them expire by the end of 2010, or to let only those making over $250,000 annually expire. You can visit here for additional details related to the capital gains and dividend taxes, however for this article we will only examine the main provisions. Republicans argue that the American people should not suffer more taxes due to the poor economy, and that tax cuts assist in job growth claiming once again the trickle down theory will be in effect. Democrats are mostly on the same page with this reasoning, however wanting to only let the taxes over $250,000 expire and use the money obtained to tackle the federal deficit.
This sounds all nice and neat but this issue cuts at the core ideological beliefs of both parties, causing further animosity between them. Furthermore, the Bowles-Simpson Committee released their first draft of a long term solution to the ever increasing federal deficit, bringing harsh criticism from both sides of the aisle. The plan brings multiple cuts and tax increases all across the board, ranging from federal and state aid, military, medical, and income taxes, with nothing being left unscathed. With that, one of the largest items that is being debated is what to do with the Bush tax cuts as mentioned before, which would save anywhere between $100 billion to $300 billion by the year 2030 depending on what tax bracket level expires. President Obama seems to be working out a compromise on the issue, with the lame duck session of Congress ending in several weeks.
Already this has started extensive talks through multiple channels and blog articles of what to cut and what to tax. For this writer's opinion, we must let the income tax cuts for those making $250,000 and more expire by the end of the year, simply to avoid cutting spending to more controversial items such as medicare and social security. Not that those items should be exempt, but capping medicare growth to just 1% for every year starting in 2013 may be too drastic and do more harm than good. Along with this, it's absurd to think that these low income taxes create jobs. If that was the case then we wouldn't have high unemployment, since the rates have remained unchanged since 2003.
In addition, the military budget needs to be adjusted, which has caused the Republican leadership to be split on the issue as well. The most painless way is to simply withdraw noncombat armed forces around the world in the United States 130+ world military bases and also shut down facilities as well related to them, saving at least $50 billion by 2030. With that, military personnel in Iraq and Afghanistan should be gradually recalled as well, which planned to be in the final stages by 2015. The federal government itself should be reduced with a 5-10% pay cut for federal employees as well instead of laying them off, since the unemployment numbers are high enough already. Foreign aid should also be drastically reduced; however, that is a personal stance of mine, considering I question its overall effectiveness for the cost.
I won't go into every detail of what should be cut and what should be taxed, though the New York Times has an excellent interactive graphic and article related to the issue, just to show how many tough decisions will be made in the coming months. However the time to act is now considering the federal deficit has been on the back burner for a while now, and if the Tea Party should get credit for anything, it's for bringing the issue to the limelight. The blame is not for any one party, though both are guilty for reckless spending and poor ideas, from the rampant defense budget propped up by Republicans during the Bush years, to the Democrats high level spending on domestic programs with little supervision.
The Bowles-Simpson plan is just the first draft of a cohesive deficit reduction program which will go through many revisions in the future. Perhaps it's a good thing that both sides disagree on the plan, can rest assured that the pain will be shared, and is not simply a partisan plan aimed at one party's destruction.
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