Americans “…will not see their taxes increase by a single dime…” if they make less than $250,000 is the promise Barack Obama repeated to the American people all throughout the campaign in 2008. Although, the income threshold below which no one would see a tax increase seemed to vary from speech to speech, what is abundantly clear is that candidate Obama pledged not to increase income taxes on those who are not “wealthy.”
In 2001 and 2003, George W. Bush worked with a Republican Congress to lower taxes for nearly all Americans. The lower tax rates are set to automatically expire January 1, 2011, unless Congress acts to extend or make them permanent. And do not be fooled by the rhetoric, failure to extend these tax cuts is the equivalent of raising your taxes.
The premise of cutting tax rates is a simple one and is supported by the economic history of tax policy in the United States. If you lower tax rates, people will use the money they keep to create jobs, invest in America, purchase goods and services, and otherwise stimulate the economy. Moreover, that increased private sector activity actually results in an increase in tax revenues to the federal treasury.
Art Laffer successfully argued when Ronald Reagan was President that there is a point of diminishing marginal returns if tax rates are too high. Any economist will tell you that raising tax rates has a depressing effect on the economy, and as the Laffer Curve illustrated, if you increase tax rates beyond the point of diminishing marginal returns, tax revenues will decline.
The 2001 and 2003 tax cuts are commonly called the “Bush Tax Cuts.” I am continually amazed at the Constitutional illiteracy of the American media. Then-President Bush may have proposed the tax cuts, but as the Constitution says, all legislation regarding federal taxes must originate in the House of Representatives. It must then be passed by the Senate before the President signs it into law. So, why don’t we call it “Congress’ Tax Cuts” or better yet the “People’s Tax Cuts?” My guess is that even two years after George W. Bush left office, it is still vogue to blame anything and everything you don’t like on George W. Bush.
The strategic error in blaming this on Bush is that everybody likes a tax cut, and in the case of the Bush Tax Cuts, virtually everybody got one—not just the wealthy. Let’s take a look at what happens to the tax rates that apply to all Americans today, if the Bush Tax Cuts are allowed to expire next January.
• Taxpayers currently in the 10% bracket will pay 15%
• Taxpayers currently in the 15% bracket will pay 15%
• Taxpayers currently in the 25% bracket will pay 28%
• Taxpayers currently in the 28% bracket will pay 31%
• Taxpayers currently in the 33% bracket will pay 36%
• Taxpayers currently in the 35% bracket will pay 39.6%
First of all, look at who gets the biggest tax rate increase. It is the same people who got the biggest tax rate break under the Bush Tax Cuts. If allowed to expire, the lowest income bracket (well under $250,000) will see a 50% increase in their tax rate. The people in the highest, or wealthiest, tax bracket will only see a little over a 13% increase in their tax rate. This is where the rhetoric gets scary. The liberal policymakers think the higher income bracket should have their tax rates increased more than the lower income folks. And all you seem to hear from some Democrats is that the Bush Tax Cuts were only for the rich. Wait a doggone minute. Lowering the tax rate for the lowest income earners by 50% and reducing the rate paid by the richest Americans by 13% does not constitute a tax break only for the wealthy?
Besides, the “rich” are already paying the lion’s share of the taxes collected by the income tax. In 2007, the top 10% of income earners in America—the “rich” who don’t pay their “fair” share—paid more than 71% of the total income taxes collected. Moreover, it is the “rich” who invest in America and create more jobs and provide more growth opportunities than any Stimulus Plan ever has done. Tax the “rich” more and what do you think will happen to job creation and the unemployment rate?
Also, if the Bush Tax Cuts are allowed to expire, the estate tax rates, which have been reduced over time, will resume in 2011 at a 55% rate on estates above about $1.2 million. What do you think will happen to the average family farm when the parents die with a death tax rate of 55%? Do you like having a variety of food products available at prices that have been stable? Do you appreciate the values and beneficial impact on the economy that comes from having a viable family farm agricultural economy? Do you like having the pastoral scenes and do you want to protect open space and wildlife habitat? Do you think paying taxes all your life is enough and paying them when you die is not fair? If you answered “Yes” to any of these questions, then you should support the abolition of the estate tax once and for all.
There is a lot of talk in America today about traditional family values. People are starting to recognize that the traditional family unit means children are much more likely to be socially well-adjusted, productive citizens and much less likely to end up living in poverty or on welfare. But, if we allow the Bush Tax Cuts to expire, the so-called Marriage Tax Penalty comes back. If not extended, the standard deduction for a married couple will be one-third less than the standard deductions for two single people. Oh, yes, and if you have children, the deduction for dependents will be cut in half if the Bush Tax Cuts expire this January.
Do you hope to retire some day? Have you been putting away a little money in an IRA or a 401-K through your employer? You don’t have to be rich to want to retire and save some money for your future golden years. Or, maybe like most Americans, your home is your single largest investment. If the Bush Tax Cuts expire, the long-term capital gains tax rate on your retirement account growth goes from 15% to 20% and the tax rate on the dividends your retirement account will eventually pay to you will surge to 39.6%.
If President Obama wants to keep his promise to the American people, he should encourage Congress to extend the Bush Tax Cuts. He could even call them the Obama Tax Cuts. If the President and the Congress are serious about stimulating the economy, seeing future tax revenues increase, and preserving the family farm and family values, then they should support making the Bush Tax Cuts permanent. It is after all the people’s money; let’s support the People’s Tax Cuts.