Morning Bell: Cutting Taxes for Growth and Fairness

Conn Carroll /

Throughout his 1992 campaign, then-candidate Bill Clinton promised tax cuts for the middle class. By the time he was sworn into office in 1993, though, Clinton said he would have to “revisit” his tax-cut plan and was “absolutely mystified” that the media had perceived it as a major pledge. A year later Americans punished Clinton by electing the first Republican Congress in more than 40 years. President-elect Barack Obama also campaigned on a middle class tax cut, but so far, he seems intent on not repeating Clinton’s mistake. Yesterday on NBC’s “Meet the Press,” Obama reaffirmed his promise to cut taxes for 95% of working Americans:

Well, understand what my original tax plan was. It was a net tax cut. Ninety-five percent of working families would get tax relief. To help pay for that, people like you and me, Tom, who make more than a quarter million dollars a year, would play — pay slightly more. We’d essentially go back to the tax rates that existed back in the 1990s. My economic team right now is examining do we repeal that through legislation? Do we let it lapse so that when the Bush tax cuts expire they’re not renewed when it comes to wealthiest Americans? And we don’t yet know what the best approach is going to be, but the overall thrust is going to be that 95% of working families are going to get a tax cut, and the wealthiest Americans, who disproportionately benefited not only from tax cuts from the Bush administration but also disproportionately benefited when it comes to corporate profits and where the gains and productivity were going, they are going to give up a little bit more.

While it is encouraging to hear Obama plans to keep his tax cutting promise, there is much in his statement that is troubling — particularly his insistence on raising taxes on the individuals and entities “where the gains and productivity were going.” A government that raises taxes on the most productive parts of an economy impedes, not encourages growth. The Heritage Foundation sincerely hopes that Obama listens to his Council of Economic Advisers chairman Christina Romer closely. As a economics professor at the University of California at Berkeley, Romer published papers concluding: 1) tax increases harm economic growth; 2) tax cuts lead to greater economic activity; and 3) government spending has at best a small effect on stimulating economic activity.

To best promote broad economic growth and stronger benefits for the middle class, Heritage’s memo to Obama on taxes recommends:

Obama’s promise to cut taxes on 95% of Americans struck a strong chord with voters, and his pledge to lower the capital gains tax makes strong economic sense. But cutting taxes only for the selected groups Obama targeted in the campaign and then raising them for high-earners will not generate the growth America needs. Obama’s first priority when taking office must be to help stabilize a flagging economy, and that means lowering taxes for all Americans.

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