The New Tax Climate

Steve BucksteinQuickPoint!

One result of last week’s election is that we may finally achieve tax simplification in this country. An old joke on this subject goes like this: Did you hear about the new federal income tax proposal? It’s a two-line form to replace the 1040. The first line reads, “How much did you earn last year?” The second line reads, “Send it in.”

With the new Democrat majority in Congress vowing to repeal the Bush tax cuts, and Democrats in Oregon looking for ways to raise revenue, it’s time to remember what effect taxes have on the economy. We get less of whatever we tax. Everything else being equal, taxing income at higher rates will lead to less income being earned. A higher capital gains tax rate will lead to less capital gains being generated. Et cetera.

At the federal level new taxes could be thwarted by presidential veto. President Bush has yet to veto one spending bill in his first six years, but he could make up for lost time now that the big spenders will be from the other party.

In Oregon we won’t have divided government: Democrats will control the legislature and the governor’s office. Luckily, here we have the right of referendum. Just as voters turned down big general tax increases in 2003 and 2004, they could do it again. So, although nothing is as certain as death and taxes, that doesn’t preclude mere mortals from keeping taxes low.

Steve Buckstein is the Senior Analyst at Cascade Policy Institute, a Portland, Oregon-based think tank.

© 2006, Cascade Policy Institute. All rights reserved. Permission to reprint in whole or in part is hereby granted, provided the author and Cascade Policy Institute are cited. Contact Cascade at (503) 242-0900 to arrange print or broadcast interviews on this topic. For more topics visit the QuickPoint! archive.

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