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FreedomWorks is a leading grassroots organization with over a million members fighting for lower taxes, less government, and more freedom. I am writing today to offer our support for the general framework for the compromise tax proposal announced by President Obama and leaders in Congress. It is not our ideal proposal, but it is worth supporting while concurrently pushing for a major overhaul of the entire tax code and major spending reductions.
In the early 2000s, when Republicans controlled Congress and the White House, FreedomWorks activists worked long and hard supporting the tax relief that ultimately passed in 2001 and 2003. Our members called their representatives, visited district offices, and came to Washington, DC to speak directly with Members of Congress. Even then the legislation was not our ideal tax reform and its impermanence was a big disappointment. We want permanent fundamental tax reform that replaces the current system with one that is far simpler, fairer, and flatter. But that wasn’t an option in the early 2000s, so we channeled Milton Friedman, and fought for the best tax cuts we could get. Those tax bills lowered income tax rates across the board, expanding the economy by giving all individuals more incentive to create wealth by letting them keep more of every dollar they earned. In the end, we considered their passage a huge success.
Because of the institutional bias against lower taxes and spending that necessitated the budget gimmickry we did not like in the early 2000s, tax rates are about to go up dramatically if nothing is done. So doing nothing is in fact an endorsement of a massive tax increase—an estimated $3.7 trillion in new taxes over the next ten years. Fortunately, Congress is considering extending those hard-fought tax cuts for two more years. While continuing to make temporary extensions saps some of the pro-growth strength permanent rate cuts offer, the lower rates still create a better environment for economic growth than permanent higher rates, which seems to be the most likely alternative. And most importantly, lower rates leave more money with those who earned it.
The compromise framework, like the bills in 2001 and 2003, certainly has its flaws—and in a few key ways is worse. For example, it puts the death tax at 35 percent on estates over $5 million. That is far worse than the zero percent death tax this year, but is an improvement on the 55 percent tax rate on estates over $1 million that would begin on January 1st otherwise. We also view the extension of unemployment insurance, especially without a commensurate reduction in spending elsewhere, as horrible public policy. But the Democrats who control Congress have already shown they can pass such an extension without attaching it to a bill that prevents a massive tax hike. They already did this year.
These shortfalls in the bill should not be a surprise in a Washington still controlled by Harry Reid, Nancy Pelosi, and Barack Obama who campaigned on raising taxes. What should be a surprise is that we have this opportunity to avert the coming tax disaster under their leadership. While changes to the compromise may mean we need to abandon our support, we support the framework of this compromise as we know it today. Ultimately, we want fundamental tax reform and serious spending cuts so Washington may be both less of a burden on the economy and also live within the means taxpayers are willing to provide. We believe this compromise puts us in a better position to achieve those goals than letting tax rates go up dramatically on January 1st, 2011. We hope you agree.
President and CEO
[Click here to see PDF version of this letter.]