A successful tax cut has three features. First, it must be permanent. Temporary tax breaks dont stimulate consumption. As the permanent income hypothesis tells us, people save temporary payments and refunds so there really is no stimulutive effect. Also, certainty is extremely important for economic growth. Second, a tax cut must enhance incentives for productive behavior. High tax rates discourage work and investment. Tax reductions must relieve this discouraging effect to a degree. Third, the tax cut must help a group that needs the tax cut. A permanent tax rate cut for the rich would meet the first two criteria, but most people wold agree that the rich do not need a tax cut.
This does not mean I don't support lower tax rates for all income groups. I do, and I am absolutely against raising taxes on anyone including the rich. However, tax relief should be aimed at the middle class right now. So, without further adieu. Here is a real middle class tax cut plan that would help middle class families and enhance the economy:
1.) Make permanent all the Bush Tax Cuts
2.) Eliminate the AMT
3.) Reduce the bottom four tax rates of the personal income tax by 20% across the board from 28%, 25%, 15%, and 10% to 22.4%, 20%, 12%, and 8%. The top two tax rates stay the same at 33% and 35%.
4.) Eliminate all taxes on savings and investments for families making under $250,000 a year and individuals making under $200,000 a year. The tax rate stays at 15% for families and individuals making above this amount.
5.) Make these tax cuts permament
6.) Require a 2/3 majority in both chambers to raise taxes in the future
These changes will help the middle class and enhance economic growth.
President of DDO