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Benjamin Franklin’s old adage “the only things certain in life are death and taxes” is being called in to question – by politicians in the United States. And the answers they come up with on the whole issue of taxation of the American masses looks likely to affect us all…no matter where you live.
To summarize… the tax cuts that were put in to place by the United States Congress in 2001 and 2003 are going to expire at the end of the year. Now the debate is all about whether they should stay or go.
The Democrats – it would seem – want to get rid of at least some of the tax cuts (especially those that were granted by Bush to America’s high earners) while the Republicans want to keep all the tax breaks in place.
In July Federal Reserve Chairman Ben Bernanke said that he thought the government should maintain a “reasonable degree of fiscal support, stimulus for the economy.” However, he did not endorse the tax hikes or cuts. He appeared to merely state fact.
On the other hand United States Treasury Secretary Timothy Geitner is letting his opinion be known. He favours re-instating taxes on wealthier Americans – those earning more than USD $250,000. He thinks the move will earn billions for the US government without adversely affecting the US economy.
Whether it will be the Democrats or the Republicans that win this one is really anybody’s guess at this stage. However, the fact is that whatever is decided could have a profound effect on the United States economy as well as the rest of the world’s.
The United States, which is still perceived as the world’s economic engine, is still losing jobs and the men and women on mainstreet USA are still lacking confidence. Re-instating any kind of tax right now could unnerve them further. They might reduce their spending and this could seriously rattle the markets – at home and abroad.
Keeping the tax cuts in place could send the markets soaring – in the short-term. However, when the dust settles questions may well arise as to how this generosity is going to be paid for. This in turn could also unsettle the markets.
So, it would appear that – in the short term – maintaining the tax cuts could be good. In the long-term, however, it might be bad.
No matter what happens it appears to be a case of damned if you do, damned if you don’t. Nevertheless its definitely a debate that’s worth watching. After all it could affect you too.
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