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.
To get the full picture, we must also account for the taxes Americans pay to state and local governments. Over the last two years, recession-wracked citizens of at least 29 different states have already been forced to fork over more of their hard-earned money. When you add it all up, many Americans will give the Tax Man over half of every dollar they earn. Big spenders in government salivate at such a thought, but these policies come with a far higher cost – the opportunity cost of decreased investment, fewer jobs, and reduced prosperity. This higher tax burden will impede economic growth over the long run, which in turn means lower revenues coming into the Treasury. With a weak economy and unsustainable annual deficits already well over $1 trillion, we need a better plan for the future.
The truth is that we cannot balance the budget without a strong and vibrant economy. So the question we must ask ourselves is this: “How do we rein in Washington’s reckless deficits and simultaneously encourage robust job growth both now and over the long-term?” After all, recession and job loss will bankrupt American families as surely as $1.4 trillion deficits will bankrupt our country.
After spending through the roof, Democrats will tell you that they now have to raise taxes to help pay for it all. President Obama has recently become fond of car-related metaphors, so let’s put this in terms he will understand. Democrats are hell-bent on driving us off a spending cliff, and now they want you to pay for the gas. The real solution is to take our foot off the accelerator by slashing spending, like so many other nations are doing right now.
President Obama and Speaker Pelosi may claim their plan is only to raise taxes on “the rich”. Americans have already seen Democrats break that promise over the last few years. Also, remember their threats to delay any votes on these matters until a Lame Duck session of Congress, when Representatives who are not reelected may feel free to ignore those meddlesome people known as “the public.” After all, Democrats already voted for a government takeover of health care and a cap-and-trade national energy tax against the wishes of most Americans.
We should not gamble the health of our entire economy just to satisfy the desires of tax-hungry liberals in Washington. Do not raise taxes on people in the lowest income bracket, the highest bracket, or anywhere in between. It is a losing bet - not just for now, but for future generations as well. Rep. Price is Chairman of the Republican Study Committee