Tax Cuts: Tactic or Policy?

There were two articles in this morning's Dallas Morning News printed side by side. The first article concerned the announcement by the Texas Workforce Commission that most businesses in Texas will have to pay nearly triple the unemployment taxes they paid last year. It is said that, across the board, unemployment taxes next year will nearly double. More money is needed as the economic downturn continues. It seems the Workforce Commission believes that raising taxes on businesses is good way to assist the unemployed.

The other article concerned plans by the Obama administration to lower small business taxes as an incentive to encourage them to hire. It is hoped that those tax cuts will boost the job market. As a layman, I am often perplexed by the economic ramifications of manipulating the tax code. While there are many who understand much more about taxes and economics than people such as myself, these people only rarely agree with each other. What there does seem to be agreement on is that lower taxes encourage activity, and higher taxes discourage activity. So it appears that, in an odd turn of events, the lowering of taxes by Washington will offset the raising of taxes by Texas. Whether small businesses in Texas will come out ahead, remains to be seen.

President Obama, in announcing his plan, stated his goal is to stimulate the economy through lowering taxes. He also stated that he wants to work with Congress to develop "stimulus" programs to help those who are out of work. I wonder why Obama doesn't just pick one policy; either lower taxes or increased spending, and see if it works. If one doesn't work, one can always try the other. The inability to pick a plan and stick with it, rather than flail at a problem, seems to indicate indecision, if not frustration. Obama wants the recession to go away so he can get back to his plans to expand the federal government and cement it as the lodestar of political, economic, and social life. But he seems unable to decide the best way to do it. The frustration no doubt felt by the administration lay in their impatience at the slow pace at which the economy moves. An economy as large as the U.S.'s does not change direction quickly. Obama is no doubt aware of this. What he is seeking are the statistics needed to demonstrate that the economy is changing direction. Once people are persuaded that the economy is improving, he can refocus his energy on National Health Care and expanding government.

If and when the dust clears, and a national health care plan is passed, it is likely Obama and Congress will seek to recoup their losses by revisiting the tax cuts and incentives they were forced to concede. In Washington, tax cuts are more often a tactic than a strategy.