We fortunately welcome a new year without a tax increase.
For the past several years, I warned that if Congress didn’t act by the end of last year, the rates at which Americans were taxed would automatically increase. Fortunately, Congress acted to avoid this scheduled hike with 14 days to spare.
The tax package that was assembled in December represented a true bipartisan agreement. Bipartisanship is something politicians talk about a lot, but seldom seem able to do. But, circumstances did not allow either party to dictate its perfect bill. So, while neither party got everything it wanted, there were provisions in the package to appeal to both sides of the aisle, and most of us agreed it would be very bad for all Americans to allow taxes to be increased.
The most important things this bill did, in my view, was to freeze all existing income, capital gains, and dividend tax rates and reform the death tax for the next two years. Without legislation, taxes would have skyrocketed for all Americans. Low income Americans would have seen their taxes go up by 50 percent, for example. And so, by maintaining current tax rates and instituting death tax reform, the bill provided positive economic certainty to families and to job creators.
Tax increases would certainly hurt the economy. Looking back at 1936, for example, when President Roosevelt raised taxes on high earners. The shaky economy plunged back into depression and unemployment skyrocketed. Democratic tax increases combined with Republican tariffs showed that neither party had a monopoly on bad ideas.
Freezing the tax rates at their current levels, on the other hand, will help the economy and to facilitate job growth. Some on the liberal left seem to think that tax provisions in this bill should implement their particular philosophy of class warfare. But the tax code is not a vehicle for punishing certain taxpayers, as some on the left seem to think. I would hope we all agree we want to help job creators as well as job seekers. Ideology should not trump those concerns — on either the right or left.
The key thing is that tax rates matter to growth. Businesses must be allowed to retain earnings so they can expand, invest, and hire new workers. In my view, any comprehensive tax-reform package Congress might consider this year should include significant reductions in capital taxation. For now, I’m glad that members of both parties have decided to at least block a capital-tax increase, which would have had a severe impact on job-creating investment.
Americans are looking for solutions to unemployment and reviving our sluggish economy. Keeping tax rates where they are and providing some certainty is a good place to start.