The Tax Reform Bill which passed the Senate and House last week and was signed into law is a far from perfect piece of legislation, however it successfully extended current tax rates for another two years. Thanks to Republican Senators McConnell, McCain, DeMint as well as others the $1.1 Trillion Omnibus Bill was split from the Tax Reform package and ultimately killed by the Senate. And this was done before the Tea party reinforcements arrived in January.
With passage of the Tax Reform act and demise of the Omnibus Bill, the Tea Party clearly has made a difference in the course of debate in Wash DC. The Tax Reform Act averts tax rate increases for two years when hopefully Congress will enact meaningful tax reform, reducing taxes permanently. While the Bill contained spending provisions extending seemingly unending unemployment benefits and the ethanol subsidy, nearly $775 Billion of the alleged “price tag” is not spending but simply a continuation of existing tax rates. The adoption of this Bill results in less tax uncertainty and clearly is a step forward in stimulating economic growth.Economist Larry Kudlow an CNBC commentator said recently (here),
“For those conservatives who are still complaining, I urge you to reconsider the importance of marginal tax-rate incentives for the economy. Tax-rate increases will depress growth and worsen the budget deficit. There’s no way America’s financial position will improve without economic growth, nurtured by low tax-rate incentives. And if the compromise tax plan had been defeated, the economy would have been held hostage for as much as six months, before the implementation of some kind of new plan to extend the Bush tax cuts through the complicated budget proIcess.
“In this sense, the tax-cut compromise does far more good than bad. A new batch of statistics shows recent economic improvement: rising retail sales and industrial production, a jump in the Index of Leading Indicators and lower jobless claims. The trick here is to nurture the new economic improvement, not snuff it out with higher taxes.”
The $775 Billion of investment and spending by businesses and consumers resulting from this legislation won’t require much a of a multiplier effect, especially when combined with the $2 Trillion in cash sitting on corporate balance sheets to generate significant tax revenue that will more than offset the alleged “price tag”.
Republicans were not only successful in improving the economic outlook, but also in thwarting Democrat’s initial plans to fund the new Health Care Law (here), .
“It’s also why Mr. Inouye made sure his spending omnibus included more than $1 billion to ramp up ObamaCare—including money to enforce the law’s new insurance mandates, to implement Medicaid expansion, to fund some of the 159 new entities created under the law, and even to create a public health slush fund. Republican votes would have abetted ObamaCare and tied House GOP hands until September, when the omnibus ran out. “
The defeat prompted Secretary Sebelius to complain about the audacity of Republicans in restricting her Agency’s ability to implement the Health Care mandate (here).
Within a week, the Republicans, inspired by the Tea Party, successfully passed legislation promoting greater investment, spending and economic growth, while deterring the implementation of a costly and bureaucratic program which would have impaired growth and reinforced continuing economic uncertainty and stagnation.
Pete the Banker is, as his moniker suggests, is a local banker.
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