Starting January 1, 2013, Americans will face a $494 billion tax increase, the highest ever in one year. Congressional aides are calling it “Taxmageddon” — a chilling reference fit for an economic nightmare. Federal Reserve Chairman Ben Bernanke has warned that it will be a “massive fiscal cliff” for the economy.
The conservative think tank the Heritage Foundation has a new Taxmageddon page that shows the impact of these tax hikes on individuals. It includes an interactive map where you can click on your state to see what the average tax increase will be, based on the average income of taxpayers in your state.
Heritage research shows that families will see an average tax increase of $4,138. Baby boomers’ average increase will be $4,223, and low-income taxpayers can expect a $1,207 increase. Millennials will be hit with an average hike of $1,099, and retirees $857. Check out the infographic to see where you fall.
Taxmageddon falls primarily on middle- and low-income Americans. That’s because, contrary to the president’s rhetoric about “the wealthiest Americans,” 60% of the Bush tax cuts went to middle- and low-income taxpayers. Almost 34% of the tax increases from Taxmageddon come from the expiration of the 2001 and 2003 Bush tax cuts. Another 25% comes from the expiration of the payroll tax cut. Most of the remaining increases come from Obamacare, notably from the start of the hospital insurance 3.8% surtax on all forms of income over $250,000.
On top of that, 75% of the other taxes to be collected on Obamacare from the individual mandate will come from those making under $120,000 a year, according to the non-partisan CBO. Quite a different story from what the president told us when he said health care should never be purchased with tax increases on middle class families or even when he claimed Obamacare wasn’t a tax at all.
The president then tried to save face this week by calling on Congress to pass another one-year extension of the Bush-era tax cuts for people earning less than $250,000 a year, while letting the rest expire at the end of 2012 – a move that he previously agreed was a bad idea.
Passing such action won’t solve any problems whatsoever. For starters, the highest tax bracket income earners, when compared with those people in lower tax brackets, are far more capable of changing their taxable income by hiring attorneys, accountants, and the like. They can change the location, timing, composition, and volume of income to avoid taxation. Raising taxes only pushes more money and jobs overseas, which leaves America worse off overall.
Don’t believe me? Look across the Atlantic. In 2010, Britain decided to raise its top tax rates all the way to 50%. The first revenue returns came in for the government earlier this year, and the revenues have plunged. Not quite the desired effect. Even back in the U.S., California is learning the hard way that soaking the rich isn’t working out so well, seeing a nearly 22% decline in revenues after raising income tax rates.
Second, what the President fails to mention is that while allowing the Bush tax cuts to expire on the rich would bring in $829 billion extra revenue during the next decade, according to the left-leaning Center on Budget and Policy Priorities (CBPP), the non-partisan CBO projects that the president’s budgets will incur $9.5 trillion worth of deficits over the same time period. Taking it a step further, even if we taxed 100% of America’s richest billionaires, who possess a combined net worth of $1.5 trillion, it wouldn’t even cover 2011’s federal budget deficit of $1.6 trillion alone. This proves that the fundamental problem with America’s economy is out-of-control and unsustainable levels of spending. Raising taxes on the rich is a political distraction from the bigger problem at best and class warfare at worst.
Third, extending the Bush era tax cuts for the 98% for only one year will not produce anymore consumer confidence than it did the last time it was extended for two years. When President Bush signed the 2001 and 2003 tax cuts into law, he gave them a 10 year time frame to foster a long term, predictable, pro-business environment to plan ahead in. Mapping out tax rates for only 1-2 years at a time does not remove uncertainty and only leaves persistent hesitation to spend, invest, or hire.
Pro-growth tax reform, as illustrated in the bipartisan 1986 Tax Reform Act, closes loopholes that allow for overseas tax shelters as well as special interest subsidies in order to collect on revenue more efficiently while cutting tax rates across the board at the same time to incentivize businesses to keep money and jobs here instead of overseas, thus broadening the tax base.
We already have the highest corporate tax rate in the world at 39.2% (when including state and local taxes), leaving us with a huge disadvantage competitively in the age of outsourcing and globalization. At the same time, our corporate tax code is riddled with loopholes and special interest subsidies, making the revenue we collect on our corporate taxes far less than where the rate is set. In other words, we’re not incentivizing global businesses to keep jobs and money here
Both parties are aware of this which is why several members of both parties understand that pro-growth tax reform is the only way to solve the problems inherent in our tax code. Thirty-six Democrat, Republican, and Independent senators, 100 Republican and Democrat congressmen, the bipartisan “Gang of Six” plan, and the president’s own Simpson-Bowles debt commission have all come out in strong support of pro-growth tax reform. It has more support among both parties than any other tax reform proposal, including raising tax rates even higher.
In advocating pro-growth tax reform, Romney has proposed to lower the corporate tax rate from 35% to 25% across the board, cutting everyone’s income tax rates by 20%, and best of all, pays for all of it by returning levels of federal spending to 20% of GDP (the historical average throughout the 20th century) by 2016. Below is a side by side chart comparison of Obama’s proposed 2013 tax rates and Romney’s. As you can see, Romney’s tax rates would be even lower for the 98% than Obama’s:
The strategy taken by President Obama and Senate Majority Leader Harry Reid (D-Nev.), on the other hand, offers no budget plan for 2012, offers no entitlement reform (the largest consumer of federal tax dollars), and assumes that simply raising taxes on the rich will solve all of America’s problems.