Last week, Rep. Scott Garrett from New Jersey and 33 co-sponsors (including Maryland's Roscoe Bartlett) introduced a bill which probably will get nowhere in the Democrats' scramble to target tax relief to those who don't pay income taxes and create make-work jobs for their union benefactors building bike paths and "green" buildings.
H.R. 470 instead takes the proven formula of stimulating the economy by cutting taxes for everyone and assisting small business. It makes the 2003 Bush tax cuts permanent, lowers rates for all taxpyers (the current 10% to 35% rates would slip to the 9.5% to 33.25% range, which is a proportionate 5% drop in rates from low to high), repeals the alternative minimum tax entirely, and cuts corporate income tax rates from 35 percent to 25 percent. And that's just for starters.
The proposal also increases the child tax credit from $1,000 to $5,000 and makes it permanent, allows those over 70 to maintain their retirement accounts without withdrawing the money, increases the allowable deduction for educational expenses and student loans, and allows tax-free IRA withdrawals to those who otherwise would be penalized - but only for this year.
Finally, the proposal mandates an across-the-board 1% cut in discretionary spending.
While I've never been crazy about the way our federal government has somewhat arbitrarily selected the several different tax rates or targets certain actions for deductions as opposed to other actions, lowering each of the tax rates proportionally would be a good thing. If we're to be saddled with the tax code we have for the foreseeable future, certainly these provisions make a lot more sense than growing government through deficit spending to put money back into the economy.
And while this plan makes more financial sense than anything the Democrats have come up with, we already have enough instances where the money one is forced to give to the federal government as an interest-free loan comes back in the form of a "tax refund."
Personally I'd prefer a more permanent version of H.R. 143 (which Bartlett also co-sponsors), a bill which would suspend part 2 of the TARP funding and instead give taxpayers a break by temporarily halting backup withholding. But in either case, I don't anticipate the bills ever getting anywhere close to a floor vote.
Instead, taxpayers will be bending over and grabbing the ankles sometime in the future as the bills we incur today come due tomorrow. Writing in the Washington Times on Thursday, Richard Rahn postulated on the shape of things to come (h/t NetRightNation.) Maybe it won't be as gloomy as Rahn sees it, but there will be a lot of forthcoming pain if we abandon the ideals of capitalism and supply-side economics which served us well until federal interference became too great.