The Largest Tax Increase Since World War II

Posted: Dec 28, 2012 10:44 AM
Fully going over the fiscal cliff would be the largest tax increase since World War II, according to the Tax Foundation and will result in the highest top tax rates in decades. They've composed a chart tracking marginal rates since 1954. Take a look at the end, and the size of the jump projected in tax rates:

Keep in mind that as rates have come down, average tax revenue has stayed roughly the same. Reforms to the U.S. tax code have given us one of the most - if not the single most - progressive tax system in the world. In the past 30 years, the average effective federal tax rate has dropped proportionally much more for the poor and the middle class than for "the rich."

As the Tax Foundation notes:

[The fiscal cliff] will result in the highest tax rate on individual income (39.6 percent) since 2000, the highest tax rate on capital gains (23.8 percent) since 1997, and the highest tax rate on dividends (43.4 percent) since 1986.

Economic theory and evidence indicates these are among the worst kind of tax increases for the economy. As a result, most economists, including those at the Federal Reserve and the Congressional Budget Office, think this will lead to a recession in the first half of 2013. Arguably, this would be the first recession created by a tax increase since 1969, or, before that, the Great Depression. (The recession of 1990 coincided with a tax increase that was too small to have such an impact on the economy.)

Democrats are hell-bent on extracting these historically-high tax rates from wealthy Americans, and President Obama and Harry Reid seem perfectly willing to go over the cliff if they don't get their way.

On Tuesday, America goes over the cliff. Contrary to what some Democrats and progressives are saying, going over the cliff for even a short period of time will cause real economic harm. So it looks like, in lieu of a negotiation miracle, the U.S. will be plunging off a cliff. Hopefully we've packed a bungee cord.