Obama should not continue the Bush Tax Breaks, instead opting for large scale entrepreneurship of the middle and lower classes.

The democrats fared poorly in last Tuesday’s election, losing control of the House and barely clinging to the Senate.  Now the Republicans hold the House of Representatives, the democrats the Presidency and the Senate.  Obama is now forced to negotiate with Republicans on all issues, otherwise they will very simply stone wall his movements.  In an ideal world this would result in fair political movement, more or less equally balanced between the Democrats and the Republicans.

We don’t live in an ideal world.

What could just as easily happen is that politics in this country grind to a halt, as the politician bicker not over politics, but for power.  The Republicans want more influence across the government, and their only leverage is through the House.  They will exploit this, taking power forcing the Democrats to relinquish some of their power in order to pass any legislation.  The Democrats will fight for endlessly and furiously for their national influence.  Both sides are hostile towards the other, but both are willing to negotiate.

Now arises the Bush Tax Cuts, which are due to expire on December 31, 2010.  These sweeping tax breaks for middle class Americans gave money to many Americans, to spend as they please.  The tradeoff for this is a massive US deficit, if this act is extended even one year it will increase the deficit by $250-$350 billion, if left in place for a decade it will run up a bill of three trillion, or 3,000,000,000,000, on top of the near ten trillion dollars of current deficit.

Deficit is bad.  The deficit is made up of massive loans taken from other countries and banks, so the American government can spend money it needs now, then pay off the loans later.  The benefit of these massive loans is that the government has massive reserves of untapped wealth that can be accessed at a moment’s notice, very useful for wars and natural disasters.  The downside is that the country loses significant amounts of money on each of these loans, the other banks and countries that take the loans and give the money charge interest on money the US government took.  In the end the taxpayers will have to pay off the imbalance.

Obama initially wanted to eliminate these tax cuts all together, countering inflation and putting the country on a more economically friendly track.  Now he is forced to negotiate with the Republicans, trading legislation he wants for protecting this reform.  From a social perspective this is good, the American government is all about a system of checks and balances and compromising.  From the rich men’s perspective this is excellent, they benefit greatly from these tax cuts putting tens of thousands of dollars in their own pockets.  For those already struggling to get buy, they get nothing unless some small amount trickles down to them.

The question of eliminating or maintain the Bust Tax Cuts is a simple question, should those who are successful be helped or those who are in poverty?  Helping those who are successful could create new businesses, but it does not guarantee those less fortunate will be aided.  Helping those who are less fortunate will increase the standard of living for more people, but will probably not create new businesses.  Both are not good options.

I propose that we let those in poverty help themselves, give them many innovators who lack capital the money needed to start a company, help all those who are poor, but focus on those who will create new job opportunities.  Even if many of these businesses fail, the government can default on the loans and get nearly all their money back.  Those that succeed will tens of thousands of those who were previously out of work, making up for their fallen competitors.

This is how Obama should move on the Bush Tax Cuts, eradicate them and replace them with major incentives to help people who have the intelligence and creativity to help themselves.  The tax cuts should be repealed, it will create a great stress on the middle class but they can generally afford the loss that would starve and impoverish those worse off than them.

Advertisements