Dear Member of Congress:
On behalf of the 362,000 members of the National Taxpayers Union (NTU), I write to express our views on the recently-announced framework of agreement between President Obama and some Congressional leaders to extend the 2001 and 2003 tax rates. While we have serious reservations about portions of the package, some of which we have opposed outright in the past, it is NTU’s belief that on balance this compromise avoids disaster; further, it represents a preferable alternative to inaction or to other proposals that would force some Americans to pay higher income taxes. This deal is far from perfect, but preventing a devastating tax hike in the face of an anemic recovery is too important to dismiss the package out of hand.
On the beneficial side, this compromise would ensure that no American would face a hike in their marginal tax rates next year. It would extend all of the 2001 and 2003 tax rates for two more years and avert an explosion of the Alternative Minimum Tax (AMT), while also introducing a cut in the employee portion of the payroll tax of two percentage points and full business expensing of equipment. Taken together, these pro-growth measures will help prevent a slide in the confidence individuals and businesses need to invest.
The detrimental side of the deal is considerable. First and foremost, it fails to make lower tax rates permanent and put an end to the economic uncertainty (not to mention the political bickering) associated with potential hikes. The extension of lower income and investment tax rates lasts for two years, while the AMT patch, payroll tax cut, and business expensing last only one, meaning that most taxpayers will again be left in financial limbo by 2012. It also resurrects the currently-defunct “death tax,” an immoral and economically damaging policy, at a rate of 35 percent with a $5 million exemption. Finally, it adds substantial amounts to federal spending (without program reductions elsewhere) in the form of extended unemployment benefits and some refundable tax credits. These are policies that NTU always has and will continue to oppose because they serve to expand the size and scope of our bloated federal government.
Congress has once more shredded its credibility by waiting until the eleventh hour to act, only to do so by providing short-term relief. ”Kicking the can down the road” is a less fitting analogy than gently nudging that can over the curb. This is but the latest example of how Congress continues to be distracted from completing in a timely manner its core constitutional duties, like deciding appropriate levels of taxation and funding the government with proper restraint.
The ineptitude of Congress aside, NTU’s analysis suggests that this package is a modest step forward. The tax relief significantly outweighs the hikes and new spending, while the political balance in Congress is such that a more fiscally conservative package is exceedingly unlikely. If the details of this compromise change, so will NTU’s stance, and you can expect further correspondence as votes draw nearer. As it stands, NTU believes the current tax cut compromise will lead to an acceptable outcome for taxpayers, and roll call votes in favor of the package will reflect that view in our annual Rating of Congress. Votes on amendments or alternatives to this plan – good or bad – will likewise be included in the Rating.
Sincerely,
Andrew Moylan
Director of Government Affairs