Bush Tax Cuts AKA The Congressional Three Ring Circus.

Mitch McConnell and GOP Leadership

"The Dow Jones industrial average soared 249 points, or 2.3%. It was the biggest one-day gain for the Dow since early September, and came after stocks ended November on a sour note, with all three major gauges marking declines for the month." - CNNMoney.com

There is still some resilience in our economy and it will recover...eventually.  To distract us, the idle spectators of the Three Ring Circus that is congress, the GOP took a stand today (Grandstand to some) and pledged to block any bills until there is resolution to the Bush tax cuts set to expire on December 31st.  Normally, I object to these kind of tactics which we have come to expect from politicians, but on this particular occurrence I have to side with the GOP.

Today's uptick in the DJIA proves what most economist have been expounding for ages: Stability or the appearance of stability will move markets.

"The rally gained momentum after economists at Goldman Sachs (GS, Fortune 500) raised their forecast for U.S. growth next year to 2.7% from 1.9%. The Federal Reserve's latest snapshot of economic conditions showed the nation's gradual recovery continued in October and November." - CNNMoney.com

Coupled with news that the European Central Bank may pump more money into the European economy and indications that Chinese markets are performing well made for a day of "creamed" tailored trousers in Wall Street. Extending the Bush tax cuts permanently or temporarily will stabilize at least a single variable that factors into the short-term strategies for most investors.

Personally, I don't think the government alone has the ability to "create" jobs in the free market place.  The market can self-sustain if there is a stable framework that will allow it to run its course.  Now, before you liberals go on a tirade over how the bailouts prove that the free-market system doesn't work, STOP!  Take a sip from your Gingerbread Latte, take your head out of the New York Times for a bit and pay attention.  CALM DOWN!  The recent downturn in the economy will be attributed several causes, many of which are of the human factor. We will understand these factors more clearly as time passes and we can study the annals of recent history.

For now, all everyone needs to know is that our economy is very short-sighted.  Even when long term bets are placed now, the decisions are made by circumstances that can be predicted today. This is why stability, or at least the appearance of stability needs to be the focus of the current lame duck Congress and even more so for the next session.  Investors need to know right now what their tax rates will be in 2011, so they can start making their moves today.

There are many studies that point to average household incomes as proof that the Bush Tax cuts did not work. Prior to Bush in 2000 the average income was $61,517, in 2008 the year our economy tanked it was, $58,005.  Most opponents of the cuts like to point to those two numbers and ignore many other facts and factors. For example, they always fail to mention that average incomes in 2006 and 2007 were higher than even the 2000 figure.  They fail to mention that since 2001 we've seen the 9/11 terror attacks, two wars, the bursting of a housing bubble, a bank bailout, and an auto bailout, not to mention huge losses in manufacturing industries exported overseas.  None of these factors were a result of the tax cuts and attempting to link them is outright deceptive.  None of these factors were present during the higher tax rate years in the 90's.

Opponents also lament over the 2.7 trillion dollars that government did not obtain in revenue since the tax cuts went into effect but always ignore how the amount of spending in the last two years alone would have easily squandered those 2.7 trillion twice over. When Reagan cut the marginal tax rates he created incentive for the highest earners to spend well past their previous tax ceilings.  This sparked growth.  Unfortunately, Reagan failed to curb spending and borrowed heavily against the economic gains. Of course, the highest marginal tax rate during the Reagan Era was 91% and the incentives were much greater with a 40% cut than the 3%-5% figures congress is currently debating.  Regardless of the numbers, a precedent was set that cutting taxes can spark growth.  To be honest, I'm less inclined to give our expanding government any more revenue and I'm more inclined towards forcing them to administer more properly the billions of dollars they are already receiving.

Ultimately, our economy needs jobs, but when Joe Schmo says; "We want Jobs", what he is really asking for are conditions that promote job creation.  Joe Schmo probably understands that jobs aren't created out of thin air, unless he's a Federal Employee or a Union member.  A stabilizing variable in the long list of variables that determine stability is taxation. Congress needs to get that wrinkle ironed out first.  Hey, I'm all for gays in the military and immigration reform, but none of those things is going to help create jobs. Stabilizing the tax issue, might have more influence in that regard and should be on the center ring of this three ring circus.