The economic stimulus tax cuts took effect last year, and have been a key component in helping the economy recover from the worst recession since the Great Depression. Not only have they been crucial in keeping people afloat, but they have also helped to increase consumer confidence and increase spending, which have helped the economy recover. The tax cuts, however, may be coming to an end. While the government is waiting for Congress to pass a comprehensive tax reform package, the Speaker of the House and the Senate Majority Leader are deadlocked and are expecting to begin negotiations once again.
The question on the horizon is, what exactly is going to happen to the stimulus tax cuts? While the official line is that the Bush Administration has approved additional tax relief for middle class Americans, this hasn't been officially confirmed. If the cuts are officially terminated, it is possible that American businesses could be hit with steep taxes as a result.
Currently, businesses can expect a tax rate reduction of anywhere from two to four percent, depending on whether they have been holding on to assets for a few years or longer, and if they are currently in operation. Small business owners, and unemployed individuals in this economic stimulus package, will be among those hardest hit by these tax cuts. The unemployment rate for small business owners is currently around ten percent. With so many small business owners fail and filing bankruptcy, the economic stimulus package may not have time to help them through their crisis, at least right away.
Many argue that the tax cuts are hurting the economy more than they are helping it. By reducing the rate at which people pay taxes, the large number of people living in poverty will be put under more pressure to sell their homes, and businesses will not be able to attract the capital that they need to grow and remain viable. This reduction in the level of income that is paid into the country's economy will lead to more outflow of the country's resources, exacerbating the economic crisis that we are facing. Even those who agree that the economic stimulus package is good for the economy to point out the damage that tax cuts will cause.
These cuts will also hurt the country's standing in the world community. The U.S. is currently one of the largest contributors to global climate change action and the reduction of our share of oil reserves would mean a major step back in the global effort to fight climate change. Further, our trading partners are likely to feel that the U.S. is losing confidence in its leadership role in the world and will be less willing to support our efforts to curb greenhouse gas emissions. In fact, both China and India have threatened to replicate the economic . . . . . . stimulus package's cuts to the corporate tax rate, causing a further deterioration of American economic leadership.
The United States has worked too hard to get itself in this situation. Cutting corporate taxes is simply going to lead to an even further decrease in the economy's strength. Even worse, these cuts could mean that the government will receive less money than it needed for its budget and will therefore have to dip into the money supply to make up the difference. This means inflation, higher interest rates, and eventually a recession.