If Congress does nothing at all before the end of this year, all of us will receive a substantial tax increase at the end of 2010 as the "Bush Tax Cuts" will expire automatically. In Congress right now, there is a heated debate about whether or not to extend those tax cuts.
The cuts, when originally enacted in 2001 and 2003, reduced the tax rates across the board, but high income individuals enjoyed a more substantial reduction that those in the middle and lower classes, thinking that those people were in positions to create American jobs. That reasoning is rooted in the so-called "trickle down economics" of the Reagan years, which posited that giving wealthy businesses and business owners tax relief would stimulate investment in businesses, which provide jobs and therefore benefit the rest of society.
That doesn't seem to have worked out too well. Those wealthy individuals didn't get wealthy by being stupid. Most of the money they didn't pay in taxes was invested instead of being funneled back into the American economy as intended. Businesses invested more and more in cheaper foreign jobs to benefit their bottom lines, but at the expense of the American workers. As the current recession unfolded, consumer demand for manufactured goods declined substantially, making investment in manufacturing less profitable than other investments.
Now, with Congress debating what to do with the Bush tax cuts, I think the answer is obvious. The only way to really get the economy jump started is to provide tax relief to the middle and lower classes, which spend vastly larger percentages of their incomes than the wealthy.
Getting spendable cash into these peoples' hands almost immediately stimulates demand and results in consumer spending and infuses cash back into the economy.
Eliminating the tax cuts for the very wealthy will help pay for the cuts for the rest of us and limit the damage to the national debt. Further investment in maintaining the tax cuts for this class has proven simply to not produce the same bang for the buck as investment in the spending classes.
President Obama has it right this time, regardless of what John Boehner, John McCain, and the rest of the Republicans are saying, and he deserves our support.