Article: http://http://online.wsj.com/article/SB122714465532443171.html?mod=relevancy
Summary
This article I chose from The Wall Street Journal is about the opinions of two individuals, Newt Gingrich, and Peter Ferrara on the flaw in President Obama’s tax plan, which consists of creating or expanding federal income tax credits to low-middle income families. These credits provide little help to economic growth because it does not reduce marginal tax rates, which gives an incentive for people to save their money, invest, and work. Gingrich and Ferrara propose to have the 25% income tax rate paid by workers earning $32,550 to $78,850 reduced to 15% for everyone earning below that level. If one includes all the taxes along with the marginal tax for middle-income earners, it would add up close to 50%. By having these tax cuts instead of tax credits, middle-income earners would earn more money, and at the same time reducing the marginal tax rates for higher-income workers.
Connections
The concept tying into this article would be the marginal tax rates discussed in chapter 4. As suggested by the writers of the article, by reducing the tax rates, people would gain an incentive to save, invest, and work more than before due to benefits of gaining that extra income from the tax cut. The 15% flat tax rate would help further eliminate disincentive effects of the high marginal tax rates. However, the tax credits from President Obama’s tax plan currently acts as a disincentive to the workers, further discouraging risk taking and hard work rather than promoting it.
Reflection
The points brought up in this article are all very valid and of which I totally agree with. I personally would rather have a marginal tax cut than receiving tax credits. A 10% reduction in marginal taxes can be a considerable amount for me if I ever plan to live on my own. More so, a tax cut would really help the economy going, more people would work and there would be more money circulating in the system. I believe that Canada should have one of these reductions in their marginal tax rates, seeing the cut would benefit our economy just as it would if it was implemented in the US.
