A​‌‍‍‍‌‍‍‌‍‌‌‍‍‍‌‍‌‌‌‍​ Taxing Issue In early summer 2011, the nation faced the prospect of default and Republicans and Democrats tried to find ways to reduce deficit spending or risk a credit downgrade. One idea was to end tax breaks for those who earn more than $250,000 per year: “the rich” (according to President Obama and other key Democrats), or “job creators” (according to John Boehner and other key Republicans and Tea Party activists). At a time of protracted economic stagnation, this issue inflamed passions across the political spectrum. The key arguments: In favor of taxing “the rich” • The existing tax rate is well below historic norms and the country simply cannot afford tax breaks for those who have benefited most from our business-friendly economic system; in the interest of shared sacrifice, tax breaks for the wealthiest must be slashed to overcome this crisis. • Hiring would not be affected, since most business owners would only add new workers if they would benefit financially on a net basis, including tax payments; so if the demand is there, the jobs will be there, regardless. • Many economists and bipartisan commissions agree that there is no way to close the deficit without some “revenue enhancements” (i.e., tax increases). Given the soaring federal debt, we as a society must seek every possible source of additional revenue. Against taxing “job creators” • If we improve economic growth, rather than increasing taxes, the revenues will come. • Raising taxes on job creators is the worst way to close the deficit, since it will inhibit new hiring; some small business owners may even be forced to layoff workers, adding to the deficit yet further. • The tax would be creating a disincentive for growth, without much corresponding gain, since the American Enterprise Institute claims that the additional revenue would produce only “a rounding error compared to the defi​‌‍‍‍‌‍‍‌‍‌‌‍‍‍‌‍‌‌‌‍​cits in the president’s budget.” • As chapter 7 explains, small businesses create more than 2/3 of the new jobs in our economy—so we should make it as easy as possible, rather than throwing up roadblocks. You Decide: Do you think it makes sense to increases taxes on those who earn more than $250,000? Please defend your answer. Is it fair to have different tax rates for different income groups? If you owned a small business, such as a night club, what financial factors would influence your hiring?