Economist Mark Zandi, who has served as an adviser to both President Obama and Senator John McCain, recently said that raising taxes on anyone in 2011 is “a gamble” that would increase the odds of the economy sliding back into a double-dip recession. No wonder Zandi opposes the tax hike Washington Democrats are about to administer. It is a high stakes wager we cannot afford to lose.
The disconnected Obama administration may insist on calling the past few months a “Recovery Summer,” but double-digit unemployment continues to plague a large swath of the country. With so much on the line, one would hope to see Washington pursue policies most likely to encourage long-term growth and job creation. Instead, Democrats are threatening Americans with what could be the largest tax increase in our history.
Just how big are we talking? Up to $3.8 trillion – and it would fall on taxpayers across the entire income spectrum. Let’s start with the federal income tax. According to the non-partisan Tax Foundation, the typical median-income family making $63,000 a year would be hit with a $1,540 higher federal income tax burden. The 10% rate for the lowest income taxpayers is slated to disappear completely in 2011, and the rate paid by those Americans would increase sharply by 50%. For the top bracket, the income tax rate would rise to just shy of 40%.
The Death Tax, which disappeared this year, will return in 2011 to confiscate 55% of assets over $1 million. At first glance, that sounds like a big exemption. But plenty of middle class families with small businesses, family farms, or long-term property investments will have to sell their inheritance off piecemeal just to pay the tax. Never mind that many of the assets hit by this macabre levy were already taxed when their previous owners accumulated them.
And speaking of taxing the same dollar twice, money that companies distribute to investors as dividends gets taxed once as corporate profits and a second time as personal income. Combined, the top effective tax rate on dividends will shoot up to a whopping 68% in 2011. The top capital gains tax rate will rise to 20%, meaning the IRS takes one-fifth of any gain you get from investing in stocks and bonds. The losses, of course, are yours to keep. Clearly, this is not a good way to encourage the saving and investment needed to build a strong foundation for economic growth.