About that $318 Billion Tax Hike
Posted February 26th, 2009 at 10:58am in Ongoing Priorities 
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According to the Washington Post, President Obama plans to create a new health care trust fund that will cost $634 billion over ten years. The money for this fund will be generated by a massive tax increase on those earning over $250,000 in income. The Administration estimates that a total of $318 billion will be generated by this tax increase. According to the President’s Budget proposal, the plan will raise revenue by limiting the tax rate for itemized deductions to twenty-eight percent for tax filers over $250K.
This tax increase alone will boost the annual tax burden of these taxpayers by almost a fifth each year, and this is before President Obama lets the Bush tax cuts expire. It is not sustainable to try to pay for all the new government programs on such a small group of tax filers. There are less than four million tax filers with income over $250K. This one tax increase will increase their taxes by almost $8000 on average. There will be behavioral changes where these earners will shift their compensation into areas that are subject to less punitive taxation.
If these workers take their compensation in capital gains and dividends, then this proposal will not raise as much money as predicted. Capital gains and dividends are taxed at a lower rate and will be even more favored over ordinary income such as interest or wages. As the Administration piles tax increases on tax filers over $250K, the incentive to shift or defer income will increase.
UPDATE: Related thoughts from the TaxProf Blog.
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12 Responses to “About that $318 Billion Tax Hike”
Kelly, Pennsylvania on February 26th, 2009 at 10:58am said:
I think this budget is foolish and I don’t understand why elected officials can’t see the truth. I want to be able to fight back and make my opinion heard and UNDERSTOOD by the liberal left but I feel like my rights have been stripped. Can someone please help???
Jeff, Pennsylvania on February 26th, 2009 at 10:58am said:
Is it just me, or is it possible that in order to totally control the direction of our nation, the radical liberals (socialists) who have hijacked the Democratic Party are deliberately destroying our economy like they partially did our morality? The initiatives they are advancing and passing in Congress will, in short order, devastate our economy and way of life. I’m not a paranoid conspiracy nut but what I’m watching happen has to be part of a plan, the goal of which appears to be permanent political control.
sally, georgia on February 26th, 2009 at 10:58am said:
After living pay check to Thursday for many years my husband and I decided that this was no way to live. We started striping parking lots on weekends to make extra money for our family.
We eventually started our own construction company 25 years ago.
We did not buy new trucks or equipment, instead my husband searched for “good deals” on used items. We grew our company slowly and methodically, only in the past few years have we started buying new trucks to cut down on maintenance. Borrowed the funds to do this and paid the loan off before making other big purchases. Last summer we had 30+ employees, today we have 16. Yes, we make over $250,000.00 per year. Thought that this was the American Dream. I will spend the next months liquidating assets, laying off more employees, probably closing my highway construction business.
At that time, my income should be lowered dramatically and maybe my government will reward me !
ra,ohio on February 26th, 2009 at 10:58am said:
Sally,…Do you think Obama cares about your small business ??
He’s busy building HIS DYNASTY.
lucy on February 26th, 2009 at 10:58am said:
I’m mad! Everyone i know Dem and Rep is mad Spending of money we do not have. More taxes! More companies will move overseas, charities will hurt. Obma says one thing and then turns around and does something different. This as lying and he has done it numerous times! Passing a bill that was not read or debate shows this whole group is a bad and dangerous group. The list goes on and on!
ra,ohio on February 26th, 2009 at 10:58am said:
Jeff,…This started in 2006 when the dems gained control.
We have 2 years to survive this and then we can respond with our vote.
In the mean time we can speak to our elected representatives that want to be re-elected.
This money/power grab is unpresidented in the history of this country, aside from FDR.
Valerie Griffin Helena AR on February 26th, 2009 at 10:58am said:
I think the plan is fine. People that make that
much money can afford to pay.
Jeff, Pennsylvania on February 26th, 2009 at 10:58am said:
Not to wish my life away but is it 11/10 yet? I’m itching to vote. Murtha’s gotta go!
ds, mad city on February 26th, 2009 at 10:58am said:
When I hear phrases like “people that make that much money can afford to pay,” it makes me realize just how poor a job our schools and media have done in educating people on basic economics. Sadly, too may people still think there’s such a thing as a free lunch. I can only hope they’ll wise up when they wind up paying the price for the tax increase on that guy who makes over $250,000.
liberty 4 usa on February 26th, 2009 at 10:58am said:
The way to fight back is to build power locally.
Individuals working on issues at the local level build networks and solve problems. This is where our leaders emerge.
I suggest spending time at http://www.surgeusa.org/
which is a new site dedicated to help thoughtful people empower themselves and share ideas for solutions.
Good luck finding as many links to conservative resources to do this elsewhere- and BTW, its growing daily.
We all need to get involved to stop this theft before it is too late.
Everyone won’t take this suggestion but for those that do -spread the word.
The site is not a non-profit, for profit , or partisan blog . It is a new tool to aid in fighting the liberal insurgency
Michael, Georgia on February 26th, 2009 at 10:58am said:
What is the single tax deduction that helps the less fortunate? It has got to be the charitable giving deduction, and I heard it is going to be reduced. My wife and I get capped each year within the current tax code. Although a tax deduction is not the primary purpose we give, it is a benefit and is considered when we do our annual budget. What kind of backwards policy would do anything but increase or do away with any cap on charitable giving, perhaps we now know.
James, Dallas, Tx. on February 26th, 2009 at 10:58am said:
Stop and think of what I’m about to say. Every facet of “OUR” government and retail businesses alike continue to squeeze every dollar they can from us. When are the American people going to ban together take control of this matter? NOW’S THE TIME!!