Saturday, September 4, 2010

Democrats Proposing Tax Cuts? Must be an Election Coming

In December 2008, Representative Louie Gohmert of Texas, a Republican proposed a payroll tax holiday. The economy was falling apart. The election had just passed and in one month, Washington would be in the hands of the Democrats in the House, Democrats in the Senate and the head liberal Democrat in the White House, Barack Obama.

At that point, there was nothing the Republicans could do in the House. In the Senate, they could only filibuster because they had one vote to stop a filibuster. Of course, they had RINO's (Republican in Name Only) Susan Collins and Olympia Snowe from Maine and Arlen Specter from Pennsylvania who were always a danger to cross over and stop any filibusters.

The Democrats proposed a stimulus package. They claimed that we were losing 22,000 jobs a day and the stimulus would stop it. Obama wanted it on his desk by Presidents Day. Without reading the bill, it passed the House, then the Senate. Collins, Snowe and Specter crossed over and the Senate passed the bill.

Gohmerts proposal? It never saw the light of day, despite the idea that it would create 6.2 million jobs.

It's now September. A year and a half following the stimulus. The stimulus hasn't worked. Jobs have continued to disappear. The Tea Party sprang up and have been going on all over the country for nearly two years. Democrats are in deep trouble this election. Even they are admitting that they are about to lose the House and they are even thinking that they may lose the Senate. The "experts" and pundits are saying the Republicans could gain 47-49 seats. Personally, I'll be disappointed if they only take 70 seats away in November.

Now it appears that some Democrats have gotten "religion". This week, Obama is going to speak on the economy. It's been reported that he's going to propose a payroll tax holiday. Where have I heard this before? Oh yeah, in the very first paragraph I mentioned Louie Gohmerts plan. A payroll tax holiday.

Will this work? Yes, for a time. But that question can apply in so many ways. The payroll tax holiday, as Gohmert proposed it, will work for a time. It will stimulate the economy. It will create jobs. It will spur the economy on and it will put money back into the markets which is now sitting on the sidelines because businesses aren't putting money in the economy fearing the coming increase in taxes in January.

But there are questions that go along with this proposal. Will they include with this payroll tax holiday, extending the Bush tax cuts for everyone? If not, then it won't work for more than a short term fix. The length of that term is based on how long they put the holiday in for. If it's just three months, it won't do much because people will know that their taxes will go up three months later.

Supposing for a moment that they extend the Bush tax cuts, or even (be still my heart) make the Bush tax cuts permanent, the payroll tax holiday will work, but again, only to a point. It will not be a long term fix unless Congress also cuts spending. If they continue to spend as they are, the tax holiday will eventually dry up. Likely it will be after the holiday is over.

Increasing taxes does not raise revenue for the government. It only stops people from spending money, which reduces economic activity, which means less money being earned by taxpayers, which means less money coming in to the government.

Tax cuts ALWAYS work. President Reagan lowered taxes. That created the longest period of economic growth in history. It also nearly doubled revenue coming into the government. President Bush cut taxes, twice. Those tax cuts generated more revenue to the government and in several quarters, the government took in record amounts of revenue. A record which still stands.

Alas, all good things come to an end. When you cut taxes and generate more revenue, Congress gets excited. They see more money at the ready and they are ready to spend it. We all know that they are very good at spending money. Eventually, those expenditures wipe out the benefits of the tax cuts. We are then left with fighting over how best to spur on the economy. So again, tax cuts are considered, but nobody is talking about what spending they can cut.

If we get these tax cuts, the payroll tax holiday and the Bush tax cuts either being extended or made permanent, the spending will increase and we'll be back in this position again within a couple of years.

There is another aspect to whether the tax cuts, payroll tax holiday or extension of the Bush tax cuts will work. The only reason that this is being proposed is because Democrats are in serious trouble. This is a last gasp attempt to hold on to their seats. It's probably too late, but the Democrats will say that they are showing that they are flexible by putting the final touches on the stimulus in an effort to spur the economy. The plan likely won't be felt until after the first of the year (depending on when the "holiday" starts). However, it will be a selling point for the Democrats in their campaigns to be able to say that they passed the tax cuts.

They may save a few seats, but it's so late in the campaign, that too is unlikely.

The Democrats have proven one thing that we've all known, though. The best chance the people have at getting good government is to survive until two months before the next election. After two years of ignoring the people's desires, they now must depend on those people that they ignored to keep their jobs. If it's campaign season, the hot topic is lowering taxes. I wonder how desperate the Democrats have to get to start proposing a "fair tax".

You're welcome to comment.



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