by Richard Schneider
Professor Emeritus, WSU
Maybe not so new, but with the recently elected Republicans representing the more conservative rather than moderate segments of the party, plus the influence of the tea party, we can expect an effort to push conservative tax and spending agendas. First I would like to revisit an article I wrote prior to the 2008 elections, which examined the different economic philosophies of the two parties. At that time I wrote:
“Republicans believe in the supply side economics; trickle down. Companies and investors provide the jobs and drive the economy. The more money they are allowed to keep, or receive; the more that will trickle down to the working class in the form of jobs, a stronger economy, and security for workers. Thus the tax plan will generally lower taxes and increase tax credits and deductions for companies and investors.
Investment income should have a lower tax rate or no income tax at all. Investment income includes interest, dividends, capital gains, etc. The individuals that invest the most are in the upper income brackets, and the tax rate should be reduced for them, even if the income is from wages and salaries, so they have more capital to invest. The Republican national committee has recommended there be no tax on investment (unearned) income.
From the conservative side:
Wealth is a measure of success. This is the American dream, which should be rewarded not punished. Those who are the brightest, most productive and innovative will be discouraged from achieving if a graduated income tax system is in place. Corporations do not pay tax, but just pass them along to the consumer, as part of the price of the product or service.
Every able bodied person should be working. Jobs allow individuals to be self sufficient. Many people on welfare and other entitlements are free loaders, and should be forced to work. Providing assistance to companies and investors will benefit all, in the form of additional jobs, higher profits, security and enhanced value of retirement funds. “
Given these philosophies and beliefs, my prediction is that we will see proposals for lower or no taxes on investment income; interest, dividends, and capital gains. In Wisconsin which is Republican controlled, we see the start of this with the introduction of a bill by Sen. Randy Hopper, to lower tax on capital gains, to a point of 0% in 2014. Both on the federal level and state levels we should see proposals for lower income taxes, which will have higher dollar benefits for upper incomers. To cover the deficit and offset tax cuts for unearned income and upper incomers, they will propose cuts in entitlements programs, such as unemployment, social security, Medicare, etc., along with defunding public radio and television, and the fine arts. The chopping block may also see education and health care funding. Defense spending will most likely be the last to see cuts.
What some do not seem to understand is that tax cuts, credits, special tax deductions, etc. are just as much spending issues as entitlements and defense. In the early 2000’s two large spending programs were initiated, one was war, and the other huge revenue reductions in the form of tax cuts. This was the first time in United States history when the country went to war without an effort to raise revenue to pay for it, in fact it was just the opposite, and the federal government reduced revenue. This action was a significant contributor to the national deficit.