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April 16, 2010


During the last recession, President Bush passed two rounds of tax cuts designed to create more disposable income for working Americans and stimulate the economy.  The left, since the laws were passed, argued that the tax cuts were only for the rich.  While the rich may have benefited greater from the tax cuts (because they make more income), the expiration of the Bush tax cuts looks to hurt all working Americans.
President Obama’s latest budget openly calls for the expiration of the Bush tax cuts, but then states, “we extend middle-class tax cuts in this budget.”  This coming from the very person who stated Bush left the middle class out of his tax cuts.  The reason I am presenting this point is because it goes straight to the heart of our current President’s taxation credibility.
So what really happens when the Bush tax cuts expire?
1)      Oil companies would lose $39 billion in tax breaks.
Many in the middle class may laud this tax increase, however, an important law of microeconomics emerges from this.  When taxes are increased for a business, they always adjust their internal management accounting to increased prices.  If the entire industry gets taxed, these price increases are easier to make.
So, by increasing the cost for oil companies to operate are we increasing or decreasing our fuel prices? 
Not only this, but less oil company profit means less investment in critical infrastructure such as more drilling, pipeline maintenance, and better logistics.  All this translates to less oil supply and higher prices.  Additionally, does anyone know if this will increase or decrease oil’s desire to hire? 
2)       Investment managers would see a $24 billion increase in their taxes.
Investment managers make their money in fees paid by their investors.  When you buy a mutual fund, a certain percentage of your investment is given to the person who manages the fund each year.  I have a personal policy of buying mutual funds whose management fees are under 1% per year.  Do you think there will be more or less of these funds after this tax increase is enacted?  Again, if you apply simple microeconomics, you should know the answer to that.  According to, 92 million Americans own mutual funds, so only 92 million people’s costs are going to rise.
3)      Capital gains taxes will increase from 15% to 20% (although some reference 27%).
As the Springfield News Sun put it, If you make $75,000 a year and sell a stock for a profit, next year you’ll pay a higher capital gains tax.”  Does anyone here consider $75,000 to be rich?  That’s greater than most government employment pensions!  What about people living in urban areas like Chicago and New York City?  Could this have an effect on the stock market if investors know a large tax increase is in the pipeline? Maybe.
4)     Other Tax Increases
If you make $75K or more (which apparently is down from $200K in 2008 as the definition of “rich”), your child tax credit will decrease from $1,000 to $500. 
The death tax will return with the expiration of the Bush tax cuts.  This will tax income from inheritance that essentially was already taxed when the original holder acquired that wealth.
Not All Democrats Agree
Henry Paulson (Democrat-Goldman Sachs) on Meet the Press regarding the Bush tax cuts expiring:
“Well, I've got to say, anything right now that is going to, that is going to, in effect, be a, a, a tax increase has got to be--has got to be questioned. And an expiring tax cut is a tax increase. But I'm going beyond that, because I really do believe that we are going to need a--to take a different approach to a number of things--taxes being one of them, housing policies being another.”
Rep. Gerry Connolly (D-VA) from the Nasdaq website:
"I think there is a certain logic to leaving well-enough alone for now, given the fragility of the economic recovery.  It's a question of prudent judgment and timing."
Additionally, according to McClatchy, “income taxes will increase for all taxpayers.” 
One thing we can all agree on, it looks like the start of 2011 will not mean fewer taxes for anyone.

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