The Obama tax-hike plans would be startling in good economic times. That they have been proposed while the economy is still limping and unemployment remains at historic highs is jaw dropping. This report explains:
Taxes on high-income earners would rise by nearly $1 trillion over the next 10 years, under the budget plan put forward by President Barack Obama on Monday.
The bulk of that increase comes as tax cuts enacted under President George W. Bush expire at the end of 2010.
The top two income-tax rates, which affect people earning more than $200,000 a year, or $250,000 for married couples, will return to 36% and 39.6%, from 33% and 35% now. Under the budget plan, capital gains and dividends would be taxed at 20%, up from 15% now, for people at those income levels. . . Fund managers would see their partnership profits taxed at ordinary income rates, rather than the lower capital-gains rate, under Mr. Obama’s proposals. . .
Mr. Obama proposed reinstating the estate tax, which was repealed for one year on Jan. 1, at the levels in effect last year—or 45%, with an exemption for estate wealth under $3.5 million—and extending those rates permanently. . .
Mr. Obama would extend the Bush tax cuts, including the 15% rate on capital gains and dividends, for single taxpayers making less than $200,000 and couples earning less than $250,000. But he dropped a request to make permanent the payroll tax credit that fattened worker paychecks by $400 per person in 2010.
And there is the limit on charitable deductions, which John and I remarked upon yesterday. When you add it all up, we’re talking about $2 trillion in tax hikes through 2020. That includes some that are especially counterproductive if the aim is to improve America’s competitiveness. The Wall Street Journal editors explain:
Our favorite euphemism is the Administration’s estimate that it can get $122.2 billion in new revenue via a “reform” of the “U.S. international tax system.” Reform usually means closing some loopholes in return for lower tax rates. But this is a giant tax increase on American companies that operate overseas, and it includes no offsetting cut in the U.S. 35% corporate tax rate, which is among the highest in the world. The Administration agreed last year to drop this idea when it was seeking the help of the Business Roundtable to pass health care. But so much for that, now that the White House needs the money.
You can now fully appreciate how inconsequential is the grab bag of small-business tax credits, which Obama touted in his SOTU. Most small businesses pay taxes at the individual rates, and are going to get slammed hard by the Obama tax hikes. Indeed, most of those who hire, invest, and contribute the lion share of economic growth are going to get squeezed by the Obama budget, should it or some version of it get passed.
One marvels at the cognitive dissonance at work. The Obama team declares “jobs” to be the top priority. But job creators are getting a hefty tax hike. The Obama team declares its conviction that the private sector is the engine of recovery. But those who do the most hiring—small business—are getting whacked and money is being sucked out off the private sector and going into the public sector. (As Americans for Tax Reform spells it out, “Taxes are scheduled to rise from 14.8 percent of GDP in 2009 to 19.6 percent by 2020.”)
Nor are all these taxes helping to close the deficit. As Keith Hennessey lays it out, “the president’s own figures show deficits averaging 5.1% of GDP over the next 5 years, and 4.5% of GDP over the next ten years. They further show debt held by the public increasing from 63.6% of GDP this year to 77.2% of GDP ten years from now. I think it’s a safe assumption that CBO’s rescore of the President’s budget will be even worse.” And the reason for this, of course, is that as much as Obama is raising taxes, he’s spending even faster than we can take them in. Hennessey again:
The President is proposing significantly more spending than he proposed last year: 1.8% of GDP more in 2011, and roughly 1 percentage point more each year over time. Spending is and will continue to be way above historic averages. At its lowest point in the next decade federal spending would still be 1.7 percentage points above the 30-year historic average. Over the next decade, President Obama proposes spending be 12% higher as a share of the economy than it has averaged over the past three decades.
This is not a recipe for economic recovery. It is a formula to retard growth, investment, and job creation. It is also, I think, a political fiasco, the exemplification of tax-and-spend policies to which the public is forcefully averse. Once again taxes and fiscal sobriety will top the list of issues in the upcoming elections. You can understand why Democrats expect a brutal political season.