As the former go up the latter will come tumbling down.
Between President Obama’s political campaign speech on the budget last week, and House Budget Committee Chairman Paul Ryan’s thorough 2012 budget proposal, which the Republican House has already begun enacting, federal tax and spending issues have been fatefully framed for 2012.
Ryan’s 2012 budget proposes to return federal taxes to their long run postwar historical average over the last 60 years of 18.3% of GDP. In sharp contrast, what Mr. Obama is proposing is to raise federal taxes well above that long-term historical average, to pay for much more federal spending well above the historical average.
So the issue for 2012 is joined. Do the American people want Mr. Obama’s much bigger federal government with much higher taxes and much higher federal spending than the long-term trend over the past 60 years? Or do they want Mr. Ryan’s traditional, American, limited government of the postwar era, with the traditional American prosperity we have enjoyed during that time?
President Obama’s Tax Piracy
The context for considering this question is that in 2007, even before President Obama was elected, official IRS data showed that the top 1% of income earners were already paying more in federal income taxes than the bottom 95% of income earners combined. Moreover, the top 3% of income earners were already paying more in federal income taxes than the bottom 97% combined. This is what the pre-Obama income tax system would generate once normal economic growth is restored.
Already scheduled in current law for 2013 is the expiration of the 2001 and 2003 tax cuts, which President Obama last week refused to renew for single workers making over $200,000 a year, and couples making over $250,000, whom he disparaged as “millionaires and billionaires.” Also scheduled to go into effect in 2013 under current law are all the tax increases of Obamacare. Together, these job killing tax policies would result in a sharp increase in the tax rates on the nation’s small businesses, job creators, and investors for virtually every major federal tax.
The top income tax rate would increase by nearly 20%, counting the slashed income tax deductions President Obama already proposed in his February budget. The capital gains tax rate would increase by nearly 60%, counting the new Obamacare taxes on investment income. The total tax rate on corporate dividends would increase by three times altogether. The Medicare payroll tax rate would also increase by 62% for these taxpayers.
That adds up to a top federal tax rate of 44.8% on wage income, not counting the capital gains tax or tax on corporate dividends. Counting state income taxes, the top tax rate on wage income alone for most of the American people would be 50% to 55%. In Paul Ryan’s Wisconsin, President Obama’s tax piracy would add up to a top rate of 52.55%.
Ryan’s budget repeals all of President Obama’s already scheduled tax increases. So these Obama tax increases, if allowed to remain in law, would raise taxes above the long-term, postwar, historical average of federal taxes that Ryan restores. But there’s more.
President Obama noted in his speech last week that his 2012 budget already calls “for limiting itemized deductions for the wealthiest 2% of Americans — a reform that would reduce the deficit by $320 billion over ten years.” This $320 billion tax increase would be above Ryan’s long-term, postwar, historical average as well.
But President Obama last week called for raising taxes even more by denying still more regular deductions to these taxpayers, saying “But to reduce the deficit, I believe we should go further.” He indicated that involves another tax increase of $1 trillion beyond what was already proposed in his budget. That would further increase taxes beyond Ryan’s long-term, postwar, historical average.
President Obama, however, was still not done raising taxes. He called as well for an automatic tax increase trigger that would raise taxes still further in 2014 if “our debt is not projected to fall as a share of the economy.” With these automatic tax increases, the tax burden would grow still more beyond Ryan’s long-term historical average.
In addition, American business currently suffers virtually the highest corporate tax rate in the industrialized world at nearly 40%, counting state corporate rates on average. Even in the left-leaning European Union, the corporate tax rate has been reduced from 38% to 24% over the last 15 years, with lower corporate tax rates from China to India to Canada as well, leaving American business uncompetitive in the world. Yet, President Obama was oblivious to this and the resulting job killing effects in his budget speech last week, devoting just one sentence to a vague, rhetorical call for “corporate tax reform.” Indeed, he proposed in his 2012 budget still more tax increases on American businesses, which are already built into the nevertheless still disastrous projections of deficits and debt in that budget.
Does this sound to you like fair tax policies likely to promote jobs and economic growth?
Tax Piracy Won’t Reduce the Deficit
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