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Tax Cuts and Layoffs in the Economic Times and their Impact in Communities - Research Paper Example

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Summary
The Obama administration has proposed to extend an employee payroll tax cut which was set to expire in December 2011. The proposal is also looking to reduce the employer’s share of the payroll tax with the reduction favoring employers who will boost net payrolls or increase wages…
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Tax Cuts and Layoffs in the Economic Times and their Impact in Communities
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Tax Cuts and Layoffs in the Economic Times and their Impact in Communities

Download file to see previous pages... It is expected that this plan could actually boost the GDP by some 1.25% and the employment levels by 1.3 million in the next year (Kaplan, 2011). However the proposed plan is not without major difficulties perhaps the largest of which is the provision of some 447 billion dollars in order to make this plan work. For one thing, Obama’s proposal could not be tabled while Democrats controlled the Congress so tabling this proposal in a Republican controlled Congress is even more difficult. Furthermore the proposal is considering reducing the net incomes of a large amount of workers who will not agree to such proposals that curtail their employment benefits. The current economic situation is being compounded by efforts on the part of state governments to cut down on employee benefits. Already unionized workers in New York are not ready to agree to such concessions in benefits even if they have to lose their jobs as a sign of protest. Already the government in New York is deposing thousands of workers because they are not ready to accept new contracts that include tax tradeoffs as well as removal of entitlements that reduce their pays by a sizable amount (Economist, 2011). Although the largest union has agreed to reduced pay structures but the second largest union is adamant to accepting these new contracts. Friction is rising as working people are removed from jobs because they demand their right. This indicates that the federal government’s proposed tax breaks are more than just required in order to avert further layoffs which would in turn lead to little else than more recession. When the proposal’s finances are looked at in greater detail, it becomes apparent that the largest contributor to funding is from limiting deductions for upper income earners at some 405 billion dollars. The other components of financing represents smaller figures including treating carried interests as ordinary income (18 billion dollars), limiting oil and gas company tax benefits (40 billion dollars) and removing corporate jet tax breaks (3 billion dollars). It is highly clear that the federal government could still increase the chief component of funding if it did not limit the amount of deductions for upper income earners. That would put the federal government in a position to possess greater finances that could be used to stimulate the economy. While it is clear that the federal government has shown interest in creating more jobs by providing incentives and by expanding infrastructure based projects, but this proposal is highly unlikely to get tabled. Even if the proposal was to get approved in Congress somehow, the next problem would be the credibility of the federal government when it comes to creating jobs. The government has always had a poor history of creating new jobs (except the FDR years). At this point in time, tax breaks are required for low income workers so that they can deal with their pervasive state of near insolvency. However it hardly makes any sense to curtail taxes for high income earners who are already finding enough money to spend. Economists argue that the tax cuts provided to the average Joe worker are being saved up and this may even be true but given a few continuous years of savings, these workers will reinvest in the economy in terms of their savings dollars. The need of the hour is to redistribute the money in the economy ...Download file to see next pagesRead More
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