U.S. taxpayers are preparing for the largest tax hike in history as the Bush Administration's tax cuts are set to expire on January 1st 2011. Advocates that support the tax hike say that the average American would not be impacted and only the top earners in the country will face a hike. Former President Reagan Economic Advisor Art Laffer joined Varney & Company to discuss the implications after the tax hikes are imposed.
"You also get less taxes per dollar of GDP," Laffer explained. "It's a double whammy, Stuart. You not only collect less money on those [rich] people on their own taxes, but you also cause enormous damage to the economy because these people are the employers, they are the purchasers, the investors. These are the people who create the jobs."
While Laffer explains that keeping the tax cuts in place would be a smart move on the economy, he does not agree that all of the Bush era tax cuts were smart policy.
"Everyone talks about the Bush tax cuts as being so good. But bottom line the 2001 bill was terrible. The 2003 bill was good only in that reduced tax rates – so they're taking all the good parts out of the bill and leaving all bad parts," said Laffer.
The January 1st deadline has forced debate on the issue on Capitol Hill. Treasury Secretary Tim Geithner said on Monday that it would be "deeply irresponsible" to extend the tax cuts for the nation's top earners while he maintains the tax breaks be extended for middle income families.
"Tim Geithner is a bad politician just as he is a bad economist,"added Laffer.