Tax Policy Extension: A Euphemism for No Brainer

December 10, 2010

Major market indices were higher last week. The DJIA gained 2.62%, the S&P 500 increased 2.97%, and the Nasdaq rose 2.24%. Value stocks outperformed growth stocks. And the small cap index rose 3.23%. The 10-Treasury yield 14 basis points on the week, closing at 3.01%.
I recently had a conversation with one of our congressional representative. In discussing the tax debate, we both agreed that the small-business community, the nation's biggest jobs provider, would be the biggest beneficiary if the cuts are extended. And with unemployment hovering just beneath 10 percent, its seemed to be an easy decision. Only, nothing is ever in the nation's capital.
That said, it appears that our legislative branch got this one right. By all appearances, no taxpayers will have to worry about taxes rising after the new year. The question becomes, how long will they be extended?
The Congressional Research Center estimated in October that a permanent extension of the tax cuts would cost the government $5 trillion in revenue and interest on the debt over the next decade. On the other hand, Barclays Capital projects that a failure to extend all the tax cuts for those making less than $250,000 would subtract one percentage point from U.S. GDP growth, reducing 2011 growth from 2.8% to 1.8%, with "sharply lower" first-quarter growth.
Barclays goes onto say that extending the cuts for all tax brackets would raise 2011 GDP growth estimates to 3%.
The economy remains soft. Recovering, but in much the same fashion as a punch drunk fighter who narrowly avoids a 10 count. One need not be an economist to realize that the top priority, right now, is promoting the continuing recovery. Period. Politics and partisanship have no seats at this table. If we can ratchet up the GDP, and possibly kick start the jobs market, by extending the tax cuts, then we do it.
Ben Bernanke went on "60 Minutes" last night and said that the unemployment rate will not be normalized for another five years. He said that additional government Treasury purchases are possible. If the Fed chairman is leaving everything on the table to ensure the economy's well being, then the guys who nominated him should do the same. And it appears they will.
Finally, a quick mention of the WikiLeaks saga. Does an electorate have the right to know what its government is up to at all times? Are some things so important that they remain beyond the purview of public consumption? We know it occurs. But should it?
Without knowing anything about Julian Assange, I commend anyone who shines a light into the dark corners of world power. Leaders must be accountable. Castro operates with free reign. That's why his business card reads "dictator." The U.S. government does not have that right. And so should not be given the ability to do so. Senator Mitch McConnell calling Assange a "high-tech terrorist" is rather like the great and powerful Oz calling Toto a nuisance. Azzange is no hero, but he gets credit for bringing some transparency to an arena that has gotten a little too opaque. Stay tuned.

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