Weeks after the US presidential election came to a close, giving Obama a second term in office, it has come to his awareness that repairing America’s finances is imperative. Obama has before argued this financial problem must be solved by cutting spending and raising taxes. It has become increasingly important in recent times due to George W Bush’s tax cuts expiring in less than two months. The lack of spending and reduced income could lead to another recession. Also higher taxes discourage work and investment and encourage tax evasion. As it happens, Obama has already made strides in the right direction by decreasing tax breaks for the rich. However there is still uncertainty in the White House over the issue.
The highest marginal tax rates is 33% and a good way to gain extra revenue would be to restore the rates before George Bush’s tax cuts were put in place. Another way would reduce budget deficit would be to enhance the progressive tax system. With greater tax levied on the wealthier, more revenue can be gained. President Obama has intended to implement this policy, which has been accepted by most of the public. The projected target is to save $4 trillion over the next decade with $1.6 trillion through tax revenues.
Written by Stefan
Edited by Rukun Goel
December 3rd, 2012 at 2:56 pm
Obama is going to allow the Bush tax cuts to expire to reduce the deficit. However, won’t the expected reduction in growth increase the deficit in the long run as finally Economic growth is the best solution to reducing a deficit?
December 4th, 2012 at 12:45 pm
That’s a good point, but in order to maintain growth, Obama will have to maintain the tax deficit so that firms can be financed, but this means more and more loans, and has it reached the point-of-no-return yet? Will America ever really be able to pay back their loans?
December 13th, 2012 at 2:23 pm
The trouble with pumping more and more money into an economy is that it may provide temporary relief (increase in income, jobs and a lower exchange rate) but ultimately could create an inflationary environment that will undo any positive gains made in the short term.