A new report prepared by Ernst & Young further discredits Obama’s proposed tax hikes. The findings in this report show just how terrible Obama’s ‘soak-the-rich’ policy would be for the economy.
Through lower after-tax rewards to work, the higher tax rates on wages reduce work effort and labor force participation. The higher tax rates on capital gains and dividend increase the cost of equity capital, which discourages savings and reduces investment. Capital investment falls, which reduces labor productivity and means lower output and living standards in the long-run.
Output in the long-run would fall by 1.3%, or $200 billion, in today’s economy.
Employment in the long-run would fall by 0.5% or, roughly 710,000 fewer jobs, in today's economy.
Capital stock and investment in the long-run would fall by 1.4% and 2.4%, respectively.
Real after-tax wages would fall by 1.8%, reflecting a decline in workers? living standards relative to what would have occurred otherwise.
These results suggest real long-run economic consequences for allowing the top two ordinary tax rates and investment tax rates to rise in 2013. This policy path can be expected to reduce long-run output, investment and net worth.
Clearly, raising the top tax rates is bad for the economy. Obama may try, but he can’t credibly sell the argument that the rich are holding back our economy by not ‘paying their fair share.’ The next argument pushed by the Obama camp will be debt reduction. In their narrative, we can’t bring down our debt if the rich don’t pay higher taxes. This argument also fails to hold up to scrutiny. Obama’s massive tax increase would only pay for one week of government spending. This assumes that the President would actually use this money to pay down the debt. Call me skeptical, but I have a feeling this revenue would more likely to go another ‘green initiative’ than it would debt reduction. Obama’s tax hikes might make for a good class warfare campaign strategy, but it is clearly a terrible policy idea.
This post was authored by Townhall.com editorial intern Kyle Bonnell.