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Nov 8, 2017 in Economics
In the United States, the budget system determines the way forward for the president and the congress to spend money. It decided the way the money will be used, the projects the money will be used on and also states some of the ways to raise the money in order to keep these and other projects alive. The budget in the United States not only affects the nation as a whole but it extends to the entire world. This is largely to those countries that rely for donor aid form it. The job and growth tax cut relief reconciliation act of 2003 also known as thebush tax cuts refer to the changes made to the budget of the United States during the era of President George W. Bush through two acts in 2001 and 2003. The impact of this change in the budget system was seen to bring some relief to the failing economy by having an increase in the job creation and it also saw a steady rise in the recovery of the economy.
The United States Budget System
Proponents of this budget cuts are of the opinion that lower taxes are the way for economic growth. This is because homes that have more money will spend more thereby contributing to the rise of economy. These cuts did not just provide relief to the homes that earn more, but to the small business, for persons who are married with children. It is clear that the country’s economy is still in a fragile position; any attempt at an increase in taxes will only cause a decline in the spending nature of the people. The cuts allowed for tax reductions that saw individuals take home a lot more, both for consumption and for saving thus generating a trend in growth of the economy.
This is of course a good thing for the recovery of the economy; it’s a cycle that is beneficial to all involved. The consumer who has money to spend will use it on a product and hence create some income for the retailer who will in turn purchase more product to meet the growing demand and these events are will lead to a positive economic motion. A repeal of the health care plan would decrease the national deficit; it will be a burden to the small business that cannot afford to provide cover for all their employees. This will mean that they cut back on their employees in order to meet this. It should be noted that this is yet another tax.
With all these there are a variety of oppositions to the extension of the budget cuts and not to repeal the health care and the financial reforms. One argument against this extension is that it does nothing to stimulate the economy’s growth. Those who propose this are of the opinion that the higher income earners will put back their money into the economy, most will rather save this money than spend it. The fact that the money will lay idle in the bank other than make circles through investments and other purchases. In a time where the economy needs as much activity as possible this is a decline.
The Congressional Budget Office (CBO)
It has been said that the tax cuts were the highest contributor of the national debt by allowing for the decline of revenue by a whopping $1.8 trillion in the periods between 2002 and 2009. The Congressional Budget Office (CBO) in august 2010 estimated that extension of the budget cuts would mean an increase of the national debt to $3.3 trillion in the periods of 2011-2020. The CBO also had it that by allowing for the tax cuts to extend this would increase the federal debt to90% of the gross domestic product (GDP) from the current 73% by the year 2022. However, should Congress just let them expire in January 2013 as they are slated to, this ratio will drop to 61%.
Argument against Tax Cuts
The other argument against this is the fact this tax cut is simply unfair. Why? It becomes a tax cut that benefits the rich. According to the CBO, this is a move aimed at practically holding hostage the middle income families so that those with large moneys can get some heavy tax breaks. A good example is given by the CBO; those classified as millionaires will get a 22% of the tax reductions in the two years while those in the bottom will get 0.5% and less. This is a nightmare for those who have children and other bills to pay.
This is another reason why the tax cuts should just expire in January 2013. What is needed is a refurbishment of the tax system that will benefit all the American’s and not hold some at the edge while the wealthy Americans benefit from this. Since the inception of the tax cuts, the wealthy Americans have had their worth increase immensely. This is the opposite of what the middle and low income American’s have experienced and this includes lower salaries and an increase in the unemployment levels. It is only beneficial for the wealthy, a gift that does not trickle down to the bottom 20% of the working Americans. Those in favor of the benefits that this of the health care needs to understand the benefits that this health care plan has offered to many. Thousands of people have benefited from the healthcare plan.
Argument Pros Tax Cuts
Many of the pros for the extension of the tax cuts include: one the fact that this will stimulate the economy. All the players in the economic field are optimistic to the fact that this deal will give a rise to the economy with the GDP estimated to be between 0.5 to 1%. This is more than it would have gained had the government allowed for the tax cuts to be done away with. This is including the doing away of other benefits including the healthcare and other benefits such as the jobless benefits. However there is a negative side to be focused on and that is the debts that will be accrued form this extension. It will see an increase in the national deficit over a long period of time and this will in turn drag on to the GDP if a solution is not gotten within the next year or so.
In 2010, it was estimated by the Pew Charitable Trust gave an increase to about $3.3 trillion. This will happen when the tax deductions are made to all the taxpayers without being bias of their income. Another scenario that would occur is one whereby the tax cuts are limited to the individuals who are earning less than $200,000 as well as for the married persons who have earnings of $250,000. This will in turn increase the debt to about 2.2 trillion. The third scenario is where the extension is done to all taxpayers for the next two years. This would see the debt come to about $561 billion in the next decade. It is clear that the extension would have a significant impact on the state of the national debt.
In the economic period that the country is facing, it would be unwise and frankly a very bad idea to think about an increase in taxes. Across the board we can agree that their country is facing some tough economic times and a decision to increase taxes would just plummet the country in a worse financial status than it already is in. with the rate of unemployment having a significant increase in the country, and those with little money in their pockets watching it disappear faster than they are getting it, the bottom line is the fact that taxes cannot be increased on individuals while that country is facing a recession. When the tax bracket is higher the income of the family decreases and this will mean that the family is forced to do without some of the things they would have loved to indulge in. the reserves is true that the lower tax bracket means the family still has a substantial amount to make do with
This tax cut will benefit those who own small business and will afford them a small luxury of having financial certainty in the next two years should the extension be put in place. Companies have in recent times found some way of maximizing their small pool of employees. In such a situation, you may find the employees overworked and are not left with ant time to cate3r for other needs like family and others social needs. In these times of economic instability, the business owner may be reluctant to offer employment to new persons in fear of them not being able to afford to keep them on. When they are faced with this certainty they will be willing to take on some more people and that means one more person off the unemployment list.
This will also encourage the spending nature of the consumers. In the likelihood of the tax cuts being cut off, the consumer will cut back on their spending and instead save their money or put in into other uses. This will affect the vendor/business owner who will be forced to cut back on his staff since they may no longer afford to pay them. Hence extending the tax cuts will mean that the consumer has a little more to extend their budget and thus creating activity in the economy.
In as much as the democrats are against the extension of the tax cuts, terming this as a gift for the rich in the country. It is also a benefit to those who are receiving their unemployment checks. This means that a compromise has to be reached by both parties. Those who oppose this deal will have to swallow a bitter pill. With over 2 million American’s receiving this benefit, it is a settlement if so many people are able to afford a meal at least once in a day.
An extension in the tax cuts will no doubt have a significant increase in the consumer spending in a way that will see the failing economy receive some relief; In turn allowing for the creation of jobs to curb this demand. A compromise will need to be reached on whether or not to extend the budget cut. On October of 2012 President Obama gave a compromise on extending the budget cuts by having one year extension. This is for the families who are earning less than $250,000 annually. Even with the addition of 80,000 jobs in recent times, it is such a negligible number compared to the millions in need of jobs and the millions still graduating from college and universities competing for the same jobs. It should not be a matter whose politics are the best, the economy is suffering and a solution needs to be met.
As more and more families slip into poverty while millions more live on the edge of it, the governance needs to keep in mind the welfare of their people. Perhaps poverty cannot be completely done away with but policy makers can come up with some effective ways of ensuring that it is alleviated and that some light is seen by this people and slowly an attitude change can go a long way as permanent solutions are planned out. An extension in the tax cuts will go a long way in alleviating the lives of those at the bottom 20%.
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