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In the popular song “If I Had $1,000,000” by the Barenaked Ladies, the lead singer opines about what he would do if he suddenly stumbled upon fantastic wealth. According to the song, he would purchase fantastic luxuries such as a fur coat, a Picasso painting, and a monkey. Hopefully, Congress will not undergo a similar spending spree with the massive budget surplus that the federal government is expected to accumulate over the next ten years.
Ideally, the majority of the projected $5.6 trillion surplus would be returned to the taxpayers. At this point, we know that a portion of this money will find its way back into the pockets of working Americans because after a compromise between the House and Senate, Congress has agreed to an eleven-year, $1.35 trillion tax cut. With a consensus on the size of the tax cut, debate has now turned to its components. Most Americans would concur that the rule of thumb in constructing this tax cut should be to make the tax code simpler and fairer while simultaneously stimulating the sluggish economy.
The best way to accomplish these goals is to first make significant cuts in all marginal tax rates. High marginal rates place a drag on the economy by discouraging work and making it more difficult for individuals to work their way into a higher class. Americans currently face the highest tax burden in our nation’s history – mostly because we have now gone twenty years without broad-based tax cuts. The slowdown in our economy is a clear illustration of the negative consequences of such an excessive and onerous tax burden. Significant cuts in marginal rates – especially in the top rate – would encourage entrepreneurship, create jobs and grow the economy. In addition to these stimulative effects, these cuts would also make the tax code significantly fairer for all Americans by returning the surplus to taxpayers in proportion to what they pay in taxes.
Secondly, the complete elimination of the death tax should be a component of any tax cut legislation. The death tax is one of the most unfair and un-American components of the tax code. It punishes practices such as saving and investing and plays a major role in the dissolution of many small businesses. Complete repeal of this tax will make the tax code simpler and fairer and end an egregious practice of double taxation. It would also allow many small businesses to grow into larger businesses, thereby creating more jobs and strengthening the economy.
With $1.35 trillion to use on tax cuts, Congress has the ability to dramatically lessen the burden on taxpayers. They could immediately and permanently repeal the death tax and also slash marginal rates – bringing down the highest rate from 39.6 percent to 33 percent as the President proposed. More than any other potential tax reforms, these changes would make the tax code fairer and simpler and also stimulate the American economy.
So, though it may be less glamorous than purchasing racecars, exotic pets and limousine rides, as the Barenaked Ladies would do with their million dollars, if I had $1.35 trillion, I’d eliminate the death tax and cut marginal rates for all taxpayers. Well, maybe I’d buy a monkey too.