EC: The Economic Toll of the Obama Tax Hikes

Heritage Foundation

In today's Wall Street Journal, House Minority Whip Eric Cantor (R-VA) identifies two justifications for his unequivocal opposition to any impending tax increases: "The first concerns the pain that tax increases threaten to inflict on our economy over the short term. The second is to stop the slide under our current leadership towards becoming a stagnant European-style welfare state with limited individual opportunity and entrepreneurship." We’ve written before about how President Barack Obama’s reckless spending threatens to undermine our nation’s economic vitality. Before the recession, federal spending totaled $24,000 per U.S. household. President Obama’s FY 2011 budget would hike it to $36,000 per household by 2020 — an inflation-adjusted $12,000-per-household expansion of government. But spending is just one-half of this White House’s economic plan. Massive wealth-distributing tax hikes are the other half of President Obama’s wish list, and they are just as big a threat to our nation’s economy.

Contrary to what you hear from the White House, the Obama tax hikes do not just hit the wealthy. Economic life at all levels is so tightly interwoven that tax increases for one segment of the population will ultimately affect everyone. Nearly everyone will pay something, either in lower income, higher interest rates or more expensive products, to name just three economic pains the Obama tax hikes will inflict on the economy. The Heritage Foundation’s Center for Data Analysis has run simulations using their Individual Income Tax Model comparing current law with President Obama’s most recent budget proposal which includes: 1) higher taxes on individuals earning more than $200,000 and couples earning more than $250,000; 2) higher taxes on capital gains; 3) higher taxes on dividends; and 4) the return of the death tax. The CDA found that the Obama tax hikes would:

* Destroy an average of 693,000 jobs every year through 2020.
* Drain $726 billion from disposable income, $38 billion from personal savings, and $33 billion from business investments.
* Raise taxes on the 55% of all joint filers earning more than $250,000 who run small businesses that employ others.
* Cost the average non-farm small-business owner $3,500 more in taxes.
* Cost the 49% of all seniors with income below $250,000 $525 in additional dividend taxes.
* Cost the 25% all seniors with income below $250,000 $742 in higher taxes.

The bottom line is clear: All Americans would suffer economic harm under the Obama tax hikes. There simply is no justification for raising taxes when the unemployment rate is already near 10%. The American people already know this, which is why the same independents who voted for President Obama by a 52% to 44% margin also oppose the Obama tax hikes. After polling these same independents, Independent Women’s Voice CEO Heather Higgins and former President Bill Clinton pollster Doug Schoen describe what these independents really want: “Decrease the size and scope of government, cut spending and taxes, balance the budget, reduce the federal debt, reduce the power of special interests and unions, repeal and replace the health-care legislation, and decrease partisanship.”

It is possible to balance the budget without raising taxes. The United States has a spending problem, not a revenue problem. Simply bringing real federal spending back to the inflation adjusted $21,000 per household average that prevailed in the 1980s and 1990s would balance the budget by 2012 without raising a single tax on anyone. Even returning spending to the pre-recession level of 20 percent of GDP would eliminate two-thirds of the projected 2019 budget deficit without raising taxes. Our nation already has the world’s most progressive tax code. Congress should reform the tax code by making it simpler and less intrusive while also cutting spending by making fundamental reforms to entitlement programs (Social Security, Medicare and Medicaid).

Quick Hits:

* Join us at 1 PM Eastern on The Foundry for a live web chat with Heritage’s Bill Beach, director of the Center for Data Analysis and author of a new study on the impact of the Obama tax hikes.
* Former president Bill Clinton admitted on Sunday that he was wrong to predict Obamacare would increase in popularity after it became law.
* President Obama’s political advisers are considering national advertisements “to cast the Republican Party as all but taken over by Tea Party extremists.”
* Sen. Jim DeMint (R-SC) told CNN Sunday, that the Republican Party – even if it regains control only of the House – is “dead” unless it follows Americans’ demands to rein-in government spending.
* If they take the House in November, Republicans are planning to chip away at the White House’s legislative agenda—in particular the health-care law—by depriving the programs of cash.