With the economy stalled and a prolonged recession seeming all but inevitable, almost everyone agrees the federal government needs to act quickly and seriously to turn things around. President-elect Obama has put economic recovery on the top of his list, for good reason, and it is heartening to see that tax cuts make up a significant part of his stimulus plan.
Unfortunately, these tax cuts appear to be mostly temporary and coupled with massive, and in many cases permanent, new spending. We in the Republican Study Committee, a group of over 100 House conservatives, think we have a better plan. We presented our alternative, the Economic Recovery and Middle Class Relief Act, today.
Our plan includes permanent and far reaching tax cuts for families and businesses as well as a renewed commitment to fiscal discipline. It is based on principles recognized by Republican and Democratic presidents alike: tax cuts work, growth begins with the middle class, and recovery comes fastest when we allow Americans to keep more of their own money.
One need look no further than history for proof; the Kennedy tax cuts of 1964, the Reagan cuts of 1981 and the Bush reductions of 2001 through 2003 all helped revitalize lagging economies.
Conversely, huge non-military spending outlays under the New Deal did little to dent the Great Depression. An economy thrives from the bottom up, not from the top down, a truth the RSC stimulus plan recognizes.
Our plan includes three major ingredients – tax cuts for families, tax relief and growth incentives for businesses, and restraint of federal spending.
The RSC proposal reduces individual income taxes by 5 percent, repeals the alternative minimum tax for individuals, raises the child tax credit from $1,000 to $5,000 and boosts tax deductions for college expenses from $4,000 to $6,000, while increasing income limits for those deductions.
It permanently repeals the requirement that seniors begin withdrawing IRA funds at age 70 1/2 and suspends taxes and penalties for all of 2009 for any IRA withdrawals. This last measure will allow hard-pressed families immediate access to savings, helping prevent foreclosures or bankruptcy.
Our proposal will prohibit tax rates on capital gains or dividends from increasing in 2010, as they are currently set to, leaving more dollars in the hands of investors.
As unemployment rises, businesses need incentives to expand and hire. The RSC stimulus plan will reduce America’s corporate income tax rate (currently the second highest in the world) from 35 percent to 25 percent, cut the capital gains rate for corporations from 35 percent to 15 percent and index capital gains taxes to offset inflation. These three provisions will allow businesses to forestall layoffs and increase hiring.
We will also encourage growth and entrepreneurship by repealing limits on expensing allowances for depreciable business assets, making the research and development tax credit permanent (they are currently set to expire with the Bush tax cuts) and extending the current two-year carryback period for net operating losses to seven years.
Finally, our plan will impose a one percent across the board reduction in non-defense discretionary federal spending. The RSC sees that as a down payment on future efforts to curb the ravenous spending that plagues the federal government. Unrestrained spending helped create our current economic crisis. We cannot cure it, or avoid future meltdowns, by following the same flawed path.
The Republican Study Committee will continue to press for tax relief and spending restraint as core elements of any economic recovery plan. President-elect Obama has pledged to listen to our ideas. Moving forward, we will hold him to that promise.