Thoughts From the Heritage Foundation #2

Morning Bell: At the Mercy of the Obama Tax Hikes

Posted October 8th, 2010 at 9:22am in Entitlements with 0 comments Print This Post

When will the Obama administration admit their economic stimulus plan, which cost more than the Iraq war, failed? The stimulus has already failed to create the 3.5 million jobs President Barack Obama promised it would. It has already failed to keep unemployment below the 8% the President’s top economists predicted it would. And now, the Department of Labor reported today, a full 15 months after the National Bureau of Economic Research certified that the recession ended, that the U.S. economy lost another 95,000 jobs in September.
Total employment in the United States economy now stands at 130.2 million. This is 7.6 million jobs short of where the President promised the economy would be by December 2010 if Congress adopted his economic policies. 9.6% unemployment. A 7.6 million jobs gap. Unemployment is actually higher now than when the recession ended in June. If this is not the definition of failure, then what is?
By contrast, when the 1980s recession ended in December 1982, unemployment stood at 10.8%. Fifteen months into President Ronald Reagan’s economic recovery, and unemployment had already fallen three full points to 7.8%. Why was the Reagan recovery such a success? And why is the Obama recovery such a failure? Well, for starters, President Reagan did not saddle our children with a brand new $1 trillion entitlement. But more urgently, President Reagan also did not threaten the U.S. economy with the largest tax hike in American history.
There still is time for Congress to act to prevent the Obama tax hikes. Tax hikes that include higher rates on individual income, capital gains and dividends. No Americans will escape the damage from the Obama tax hikes including: 1) Destroying an average of 693,000 jobs every year through 2020; 2) Draining $726 billion from disposable income, $38 billion from personal savings and $33 billion from business investments; 3) costing the average non-farm small-business owner $3,500 more in taxes, and much, much more.
But the economic harms from the Obama tax hike are already being felt. The Washington Post reports today that because of Congress’ failure to take action on the tax hikes before the November election, millions of businesses will have trouble issuing everyone’s paycheck this January. The Post reports that if no action is taken, “millions of low- and middle-income taxpayers would see significant tax increases.” Former president of the American Payroll Association Dennis Danilewicz told the Post: “People are starting to say, ‘What are we going to do?’ Everyone is kind of at Congress’ mercy.”

Thoughts From the Heritage Foundation

You Can’t Tax the Rich Enough to Close the Deficit

Posted October 7th, 2010 at 5:00pm in Entitlements with 0 comments Print This Post

President Obama has driven spending and deficits to historic levels in just two years since taking office. Not content to stop there, his budget for the next 10 years keeps spending at record levels and piles up unprecedented amounts of debt in the process. To partially offset his massive overspending, the President wants to raise taxes on “the rich.” His class warfare plan can take him only so far, however, since the rich don’t earn enough to make up the difference for all the spending he plans.
Obama’s current tax hike plan would raise the top two income tax rates from 33 and 35 percent to 36 and 39.6 percent, respectively. This tax hike will take effect on January 1, 2011, if he has his way and will slow the already badly struggling economy. This will keep unemployed Americans out of work longer and suppress the wages of those fortunate enough to retain their jobs. In fact, the higher tax rates Obama calls for will destroy an average of 800,000 jobs per year by the end of the decade and lower incomes by $720 billion over that same period.
Over the next 10 years, the Obama tax hikes will take almost $700 billion from taxpayers. That is only 8 percent of the nearly $9 trillion President Obama’s budget adds in debt over that same period. Low tax revenues are not the cause of the debt explosion; spending is. The Obama budget raises spending to almost 25 percent of GDP—well above its historical average of 20 percent. Tax revenue will soon exceed its historical average of 18 percent of GDP.
President Obama has repeatedly expressed a desire to sock it to the rich to cover for his profligacy, so it stands to reason he could stick them with additional tax increases to cover his gargantuan budget shortfalls. The President shows no signs he wants to reduce spending to lower the deficit, so tax hikes remain his most likely prescription. No matter how much he wants to “spread the wealth around,” if he goes the tax-the-rich route, he is in for a rude awakening.
Closing the more than $1 trillion deficit Obama’s spending would produce in 2020 by taxing only the rich would require a top income tax rate of 134 percent. Of course it is impossible to tax more than 100 percent of any taxpayer’s income. More importantly, any rate even approaching such a dangerous level would destroy the economy. Period. So even if it were mathematically possible to tax more income than the rich earn, there would be none of it left for the government to confiscate.
There is a better way. If President Obama and Congress committed to spending reductions, the deficit could be lowered to more acceptable levels without raising taxes a dime. If Congress and the President lowered spending to its historical average of 20 percent of GDP, the deficit would fall to a more manageable level, the national debt would stabilize, and an impending financial meltdown would be averted. Whether the President can let go of his soak-the-rich mentality and take this more sensible approach remains to be seen.