With the Obama stimulus bill destined to go down in history as a dismal failure, Americans across the political spectrum are waking up to what conservatives have known for generations: government spending doesn’t help the economy, tax cuts do.
It’s a step in the right direction. Unfortunately, the Obama Democrats are afraid to embrace across-the-board tax cuts, one of the crown jewels of the Reagan legacy. Instead, they’re calling for limited or targeted tax cuts that they claim will help the economy. But President Reagan was right, it is broad-based tax relief, not targeted tax tweaks, that fuels economic growth.
Across-the-board tax cuts are straightforward: everyone who pays taxes will pay less.
Targeted tax cuts are credits or exemptions that apply only to particular people or businesses, often under complicated rules. These targeted tax cuts increase the complexity of the tax system. Targeted tax cuts are often referred to as “tax expenditures” because they are viewed by many economists as the economic equivalent of government subsidies.
That’s why calls for targeted tax cuts most often come from the left. Targeted cuts keep the tax structure intact and allow money to be directed to interests favored by politicians and lobbyists, while keeping the same rates on everyone else.
With the 2010 gubernatorial primary on the horizon, California Republicans will have the opportunity to choose between the Reagan vision of across-the-board tax cuts or the Obama plan for limited and targeted tax relief.
California’s tax structure is a problem, and tweaking the system won’t fix it.
Californians pay the highest sales tax in America. Our top personal income tax rate is the fourth highest in the country, and the corporation tax rate is the highest in the West. California’s overall business tax climate ranks 48th, meaning that only two states have tax systems worse for economic development.
We won’t change that with targeted tax cuts that apply to some and not to others. How can tiny credits for a select few revitalize an entire economy? They can’t.
And with California facing its worst jobs crisis since the Great Depression, it’s not enough to rebuild a few sectors here and there. We need to reduce the tax burden on every Californian and every business in the state. Only across-the-board tax cuts will do that.