December 10, 2010

More certainty needed from tax cuts to lower unemployment

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The tax cut extension proposal adds some clarity to business owners’ expenses over the next few years, but not enough to see major changes in the unemployment levels, according to economist and Mercatus Center scholar Matt Mitchell.

“Typically, businesses make investment decisions on a longer than two-year plan,” said Mitchell. “Hiring someone, purchasing new equipment, building a new plant – all of these things are more than a two-year investment.

“To improve unemployment, you need more than two-year certainty in the market,” said Mitchell. “These tax cut extensions resolve uncertainty for now, but less than if they had been made permanent.”

Mitchell says that making tax cuts permanent, and bringing spending in-line with the taxes is key for long term certainty, because if spending is not brought in line with tax rates, people know that in the future, their taxes will have to go up.