If you itemize deductions, the IRS says you’ll need to wait until the end of February to file your 2010 tax return. That’s because lawmakers waited until Dec. 17 to temporarily renew the 2001 and 2003 tax cuts. Those cuts will remain in place for another two years, at which time the country may again face months of uncertainly. This brings a price tag.
When business leaders and entrepreneurs aren’t certain what their tax rates will be, they’re less likely to make the long-term investments our country needs to grow its economy. In fact, if federal policy favors immediate spending instead of investment (the idea behind tax rebates and immediate reductions in withholding) business leaders are more likely to make decisions to boost their bottom line right now instead of opting to do something expensive, such as hiring workers or opening new plants, that won’t pay off for years.
Government policy matters. Consider Egypt.
Hernando de Soto, an economist who specializes on the importance of property rights, explains just how difficult it is to do business there. “To open a small bakery, our investigators found, would take more than 500 days,” de Soto wrote in the Wall Street Journal. “To do business in Egypt, an aspiring poor entrepreneur would have to deal with 56 government agencies and repetitive government inspections.” Small wonder few people own property and businesses struggle to expand.
Compare that to the United States. CNN/Money ranked the U.S. third in the world in its 2009 list of best countries for startups. Our country features “a relatively low cost and short application process to start a business, speedy importing and exporting processes, and strong investor protections,” the magazine wrote.
The differences help explain why Egypt is mired in 96th place on the latest Heritage Foundation Index of Economic Freedom, while the U.S. ranked ninth. Through the years, the Index has repeatedly demonstrated that economic freedom helps an economy grow.
“Countries that reduced government spending had economic growth rates almost two percentage points higher in 2009 than countries whose govern¬ment spending scores worsened, and countries with the highest rates of government spending had gross domestic product (GDP) growth rates 4.5 percentage points lower on average than countries where government spending was best contained,” Ambassador Terry Miller writes in the latest edition.