Q: WHAT IS SENATOR KENNEDY SPECIFICALLY PROPOSING?
Senator Kennedy proposes to raise taxes by preventing portions of the tax law the President signed into law last year from taking effect.
Senator Kennedy would raise taxes on the American people by preventing tax reductions that take place after 2003 from occurring – specifically the reductions in marginal tax rates. These higher rates would remain forever.
Senator Kennedy\’s tax increase plan also would reinstate the death tax that was repealed in the law the President signed into law last year.
Q: SENATOR KENNEDY PROPOSES TO PREVENT FUTURE TAX CUTS. IS THIS REALLY A TAX INCREASE?
Make no mistake – this is a tax increase.
If someone proposed postponing a planned COLA increase for seniors, their action would be described as "cutting Social Security."
If tax cuts are delayed, people will pay more in taxes, and they will have less money in their pockets. If they have less money in their pockets than they would have before the Kennedy proposal – that is the precise definition of a tax increase.
So when people propose postponing or eliminating the tax cuts, the only consistent way to describe it is as a "tax increase."
Democrats even call it a tax increase. For example, Senator John Breaux (D-LA) said: "I think that the worst thing you can do is increase taxes during a recessionary period. And to go back on that program would, in effect, be a tax increase." (CNN, Novak, Hunt and Shields, 1/6/02)
Q: WHAT\’S WRONG WITH SENATOR KENNEDY\’S PLAN?
- Raises taxes on millions of middle class Americans.
- Raises taxes on millions of small businessmen and women.
- Reinstates the death tax.
- Hurts the American economy by preventing future economic growth.
Raises taxes on millions of small businessmen and women.
Millions of business owners and entrepreneurs whose businesses are unincorporated will pay higher taxes. Higher marginal tax rates and less cash in the hands of these business owners will reduce incentives for hiring and curtail business expansion.
Reinstates the death tax.
Family farmers and small businesses will continue to be threatened by the complex, burdensome death tax.
The punitively high death tax falls most heavily on small businesses & family farms that are asset rich but cash poor.
According to one survey, nine of ten successors whose family businesses failed within three years of the owner\’s death listed the death tax as a contributing factor.
Prevents future economic growth and hurts the American economy.
Permanent tax cuts are most likely to increase business activity, because entrepreneurs need to know that the extra resources will be there year after year. Even the possibility of higher taxes in the future can reduce investment and employment today.
Economists agree that higher taxes can lower economic growth.
According to William J. Baumol and Alan S. Blinder (Economics: Principles and Policy): "It should be no mystery, then, how changes in personal taxes affect consumer spending. Any reduction in personal taxes leaves consumers with more disposable income to spend….Permanent cuts in income taxes cause greater increases in consumer spending than do temporary cuts of equal magnitude."
According to Paul A. Samuelson and William D. Nordhaus (Economics): "Extra taxes lower our disposable incomes, and lower disposable incomes tend to reduce our consumption spending…Without a doubt, taxes lower output in our multiplier model."
According to N. Gregory Mankiw (Principles of Economics): "When the government cuts taxes, it increases households\’ take-home pay…When the government cuts taxes and stimulates consumer spending, earnings and profits rise, which further stimulates consumer spending….If the households expect the tax cut to be permanent, they will view it as adding substantially to their financial resources and, therefore, increase their spending by a large amount."