• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Now is the Worst Possible Time for Tax Hikes

    Friday brought yet another grim jobs report. The economy created 431,000 jobs in May according to the report, but 411,000 of them were temporary government jobs working on the Census. All those jobs will disappear when the Census is complete. The jobs report is the latest signal that the stimulus has failed to create jobs and that the economy is still far from full recovery.

    With the economy still in a precarious position, this is no time to raise taxes on anyone. Yet that is just what Congress and President Obama plan to do.

    Congress is currently working on a bill that will raise taxes by $43 billion.These tax hikes will slow job creation and economic recovery – especially the higher taxes on international businesses. These latest tax hikes come close on the heels of the health care law that raised taxes more than $500 billion. It seems like Washington can never get enough of our hard earned money.

    The next tax hike on the docket is allowing the 2001 and 2003 tax relief to expire. Most expect Congress to keep the tax relief in place for families making less than $250,000 a year ($200,000 for singles), but  families earning above that mark will likely see their tax rates go up from 35 percent to 39.6 percent. But that’s not all. Tax rates on dividends could go up from 15 percent to 39.6 percent and the rate on capital gains from 15 percent to 20 percent.

    Supporters of these tax increases will argue that they won’t hurt the economy because the families paying them can afford to pay more taxes. But that shouldn’t be the way we evaluate tax policy. A better, more telling standard is to ask what effect on the economy the tax hike will have. Using this more informative measure it is clear that raising top income tax rates and the rates on capital gains and dividends will have serious negative consequences for the economy at the worst possible time.

    Higher income tax rates and taxes on capital gains and dividends will cause investment to fall which means fewer jobs and lower wages for American workers that aren’t “rich”. This will slow recovery even further. For the millions of unemployed Americans Washington “sticking it to the rich” will be little consolation for their continued lack of employment.

    Congress and President Obama have repeated again and again that their first focus is on creating jobs, but the policies they are pursuing will destroy more jobs and keep the economy mired in its long slump. In fact, raising taxes could lead to another recession. If the president and Congress are really concerned with creating jobs they will put off all the tax hikes they are threatening until the economy has returned to a more acceptable unemployment rate.

    Posted in Economics [slideshow_deploy]

    6 Responses to Now is the Worst Possible Time for Tax Hikes

    1. Billie says:

      Supporters of these tax increases will argue that they won’t hurt the economy because the families paying them can afford to pay more taxes?

      This is so immature, speculative, rhetorical and ignorant. THIS IS AN INCOMPETENT BOOBS WAY TO EVALUATE TAX POLICIES.

      Heritage is sound and thorough. But government authorities haven't the minds to grasp anything they aren't told by those they follow. The governments only focus is punishment, infringement, burden and force of government services. What can the president do without? about 3/4 of what he has.

    2. Bill, Kansas City says:

      Time for Obama and his cronies to go. Time we demanded term limits for Congress and complete overhaul of the way campaigns are financed.

    3. Lloyd Scallan New Or says:

      What will it take before everyone recognizes this is the Obama plan to drive the

      country and our economy into socialism.

    4. Drew Page, IL says:

      "Now is the worst possible time for tax hikes". Well, I guess that depends on who you are. I'm sure Mr. Obama, Ms. Pelosi, Mr. Reed and the Democrats who passed all these spending bills will think it's a great ime to raise taxes. They will be joined by the 50% of Americans who don't pay income taxes.

      Now if you are a business owner, or an unemployed American looking for a job, or a working American who is sick of paying higher and higher taxes to support government waste, those who don't work for a living and those who have no right to be in the country then you may feel differnetly about additional tax increases.

      We have not yet felt the tax increase coming from the passage of health care reform, but starting Jan. 1, 2011, employees who get their health insurance from their employers, or from a union, will have to pay income tax on the premiums the employer pays for that insurance on their behalf. Employers will be required to show the value of the health insurance premium for each employee on the W2 form for the 2011 tax year. Most people don't realize this yet, wait till they do.

    5. Jon, California says:

      President Obama has arbitrarily picked $250K as the income above which someone is "wealthy". If only this were true, there would be lots of people like myself living quite well instead of dreading a series of two tax hikes that will totally change our daily lives. By 2013 there will be lots of us paying a marginal tax rate of around 60% (Federal and state). Not only will this curb any further investment, but it will force many of us to liquidate a great deal of holdings just to raise enough cash to keep up with the taxes on income.

      I look at myself and ask quite simply what is the point of risking any investment if all I am allowed to keep is 40% or any "winnings"? As most people know, the risks these days on investments are substantial. Beyond a point the loss of reward is too little to risk the gain. It is best to "keep it in a mattress" and spend it in our remaining days. If Obama gets his way, there will be little incentive to leave the fruits of your efforts to your descendants – and all you will do in death in give the Federal government more money to waste.

      My prediction (from a very common man) is that the 2011 tax hikes will start slowing the economy back into recession. The 2013 hikes will make things worse and force many of us out of markets and investments that are no longer worth the risk. My only hope is that by then we will have voted Obama out of office and replaced him with a real leader that knows what he or she is actually doing. That will be change we can believe in!

    6. Rodney Galles, Maryl says:

      It is more than clear that none of the Democrat legislators understand the stock market. If they raise the rate on dividends and capital gains, they have raised the rate on everyone who has invested in the stock market. This will not hurt those "fat cats" they claim are overflowing with cash, but it will devastate the small businesses who use the stock market for 401 k investments and the self-employed who have IRA accounts and other investment accounts. Nowhere in the Constitution have I been able to find a restriction or prohibition for private citizens from investing in the growth of this country's capital assets. The free market is the essence of this country's greatness. The 16th amendment and the power to devise hidden meaning in a Commerce Clause meant primarily to govern foreign trade have eroded the moral power of legislators to meddle in private affairs. The end result will be the slow water method of boiling the frog of freedom.

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.