Donald Lambro

WASHINGTON -- President Obama's big-spending 2010 budget is filled with tax provisions that will stunt economic growth, job creation and new-business formation.

It's bad enough that his soak-the-rich tax increases will have a negative impact on ordinary workers, but worst of all, he'll raise them when the U.S. economy will still be in a recession or in the difficult process of attempting to climb out of one.

He intends to keep all of the Bush tax cuts except the two top tax rates, which he will let expire at the end of 2010, one year after the White House says the economy will have shrunk by at least 1.2 percent and likely a lot more. This means that coming out of a recessionary 2009, when the Federal Reserve forecasts unemployment will shoot to 9 percent or more, Obama will be raising taxes on investors and small businesses -- the very people who create jobs.

This will be the bleak result of letting the two top income tax rates rise in January 2011: from 33 percent to 36 percent and from 35 percent to 39.6 percent, or more than 40 percent when state taxes are added. But how does this impact ordinary Americans?

"According to Internal Revenue Service data, half of all business income is taxed at individual rather than corporate tax rates, and about two-thirds of all flow-through business income is earned by small-business owners with annual incomes exceeding $200,000," said economic adviser Cesar Conda.

"The bottom line: Up to one-third of all business income is taxed at the two marginal rates Obama wants to raise," Conda told his business clients.

With the unemployment rate at 7.6 percent, the highest in 16 years, this is no time to raise taxes on small businesses, the engine of job growth in the country. Or even telegraphing that he intends to do this at this end of the year.

"President Obama may propose tax hikes not take effect until 2011, but the fact is they already are depressing economic activity in the middle of the recession," said Alison Acosta Fraser, director of the Heritage Foundation's Roe Institute for Economic Policy Studies.

"Facing higher future taxes, businesses, investors and savers reduce their activities today," she said in a recent study.

But Obama's demands for more tax revenue don't stop there. He wants a 2 percent to 4 percent payroll tax surcharge on taxpayers earning more than $250,000 to boost Social Security surpluses (which the government spends). And he wants to restrict the itemized tax deductions for this same group of taxpayers, which would push their income tax rate up by another 7 points.


Donald Lambro

Donald Lambro is chief political correspondent for The Washington Times.