US Needs Tax Reform Not Tax Cuts

August 9, 2010 Taxation in USA

George is Keeping an Eye On You!In the long-run, the US will garner greater benefits from overhauling its tax system and reducing national debt, than it would by issuing another stimulus package or reinstating Bush-era tax cuts for high-income earners.

Speaking in a television interview on August 8th, Bob Rubin, international economic expert and former US Treasury Secretary, said that a second round of “major” stimulus packages would be counterproductive for the US economy and undermine the current economic recovery, which he described as “slow and bumpy.” He went on to outline his proposed steps towards an economic revival, but conceded that “…the problem is that’s very easy to say and very hard to do.”

In the face of the US’s current debates surrounding the expiry of Bush-era tax cuts, Bob Rubin said that he would like to see the Government attempt a “wholesale” reform of the tax system, instead of focusing on individually arising issues. He did, however, recommend that any overhaul plans should include the immediate institution of an estate tax, and an increase to the top two personal tax rates. According to Rubin, both ideas will have only marginal negative “supply side effects”, with extensively positive fiscal benefits. Middle-income tax rates should be left at their current level, to provide assurance for American tax payers, and counteract any future contractive effects in the economy.

The Government should focus much greater attention on immediately reducing the national deficit, instead of debating debt-widening stimulus spending. Ideally, a fiscal recovery strategy should implemented by the Obama administration before the end of the President’s first term in power. Bob Rubin admitted that withdrawing any proposed stimulus package will have a palpable effect on economic growth, however the long-term benefits of lowered sovereign risk and an eventual decreases in unemployment rates would ultimately be of greater benefit.

Explaining his motivation for the tax system overhaul and deficit reduction idea, Bob Rubin said, “…I think that would give reassurance to the markets that we’re coming back and we’re creating the basis for capital formation and … savings as opposed to consuming everything in sight.”

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