The blind squirrels in Congress found a nut: permanent tax rates

Whether you like them or not, temporary tax rates have been corrosive to economic growth. They were temporary measures to finance outsized government spending. I’m not going to argue for or against such government spending — at least not yet — but taxes are the way in which we finance the US government. I think we all can agree that, without taxes, there would be no government, and we can all use our imaginations to picture our lives without it.

Kevin Clark is a Senior Vice-President with Raymond James and Associates, and is a contributor to The Brenner Brief. Twitter @kcstock

Kevin Clark is a Senior Vice-President with Raymond James and Associates, and is a contributor to The Brenner Brief. Twitter @kcstock

Passed by the Senate, the fiscal cliff deal is, at best, the bastard child of an unloving political dalliance. This unfortunate event was probably predictable, as irresponsible behavior often occurs in the first few hours of every New Year. However, there will be consequences to this misadventure.

Be that as it may, making tax rates permanent should act as a stimulant for an economy that has been anemic. For too long, constant uncertainty, a mainstay of the Obama administration, has held back economic growth. Inconsistent tax policy creates an environment where capital is misallocated, long-term investment is postponed, and productivity is stunted as human behavior worries about what comes next.

How many investors and entrepreneurs sold stock, sold companies or took some other steps based on possible or proposed tax changes? If the tax code were set, would those steps or sales have been taken? How many people lost jobs and how many jobs were not created, all because the tax code was a moving target?

Democrats are fond of saying, look how bad the economy would have been without President Obama taking action. We all know the flip side is equally true: look how good the economy could have been had President Obama  taken appropriate  steps that encouraged economic growth instead of demonizing business. The litany of poor policies is long, but perhaps a primary barrier to growth has been the expiration of the Bush tax code and what would replace it. President Obama, by making the code temporary, also made the recovery temporary, but we don’t have an economic genius in the White House — we have an ideologue.

Before conservatives have a meltdown over this deal, I believe by agreeing to permanent tax rates, economic growth could be enhanced bringing about deficit reduction through good old-fashioned and organic growth. That is the conservative approach.
Should we be reducing the size and scope of government? Of course. Should we stand firm on no further tax increases in the future? Yes. But, the long-term economic benefits gained by making tax rates permanent should not be overlooked.

Many conservatives may be frustrated with Republicans who vote for this package. I think it just goes to show that in Washington even a blind squirrel finds a nut occasionally, and that nut is permanent tax rates.

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