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Do Partisan Politics Spell Tax Hikes?

Posted By Curtis Dubay On November 8, 2010 @ 4:12 pm In Economics | Comments Disabled

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One of the most pressing pieces of legislation that the lame duck Congress must deal with is the impending expiration of the 2001 and 2003 tax relief.

Led by President Obama, the Democrats have long argued for extending the tax relief for families making less than $250,000 a year while raising taxes on those families and small businesses that earn above that arbitrary threshold. Despite election results that clearly show that Americans do not want tax hikes, even if they are just on “the rich,” Democrats have devised a new strategy to do just that.

Their new plan, according to Politico [2], is to raise the threshold of what is “rich” from $250,000 of annual income for a family to $500,000 or $1 million. The second stage of the plan is to permanently separate the middle-income tax cuts from the tax cuts for the rich. They would do this by permanently extending the tax cuts for middle-income taxpayers and only temporarily extending them for the rich.

The purpose of this new strategy is to make it easier for Democrats to raise taxes in the future. As the thinking goes, families and small businesses making more than the new threshold will be less sympathetic than those making above $250,000, so raising their taxes will be easier politically. By doggedly pursuing a policy of class warfare for perceived political gain, Democrats are oblivious to the fact that no matter where the threshold of “rich” falls, soaking high-earners with higher taxes hurts us all.

Research from The Heritage Foundation’s Center for Data Analysis [3] shows just how badly tax hikes on the rich will hurt Americans down the income scale. If Congress were to pass the Obama tax hikes [4], the economy would produce about 800,000 fewer jobs through 2019. That would be 800,000 Americans needlessly out of work due to an unnecessary tax increase. The vast majority of these folks are not rich by any definition.

The Obama tax hikes would also cause incomes to fall by more than $700 billion over the next 10 years because of the slower economic growth. That is an income reduction of more than $6,000 for every household in America.

The argument that President Obama makes frequently—that tax hikes on the rich are necessary to close the deficit—holds no water. If President Obama and his supporters were intent on reducing the deficit by raising taxes, they would not just single out the rich for higher levies. As the chart to the right shows, the middle- and low-income tax cuts reduce revenue considerably more than the high-income relief by a ratio of almost four to one.

In his weekly address Saturday [5], President Obama said the message of the election was clear that voters are “fed up with partisan politics and want results.” It seems President Obama’s conception of compromise is the same as it was for the stimulus, health care, and a host of other issues: He has his plan. The Republicans have theirs. Compromise consists of Republicans abandoning their positions and submitting to his.

The President needs to finally realize that a majority of the American people and a majority of Congress (including many members of his own party) have rejected his tax hike plan. They want to see the tax relief extended for all taxpayers. To get it done, President Obama must adjust his one-sided conception of bipartisanship. The big question is if the President is capable of accepting compromise that doesn’t consist of him getting everything he wants. The fate of the economy depends on him doing just that.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/11/08/do-partisan-politics-spell-tax-hikes/

URLs in this post:

[1] Image: http://www.heritage.org/Research/Factsheets/Obama-s-Tax-Plan-Bad-for-Economic-Growth

[2] according to Politico: http://www.politico.com/news/stories/1110/44744.html

[3] Center for Data Analysis: http://www.heritage.org/research/reports/2010/09/obama-tax-hikes-the-economic-and-fiscal-effects

[4] Obama tax hikes: http://www.heritage.org/Taxonomy/Issues/Taxes/Tax-Reform-Issues/Tax-Increases/Obama-Tax-Hikes

[5] weekly address Saturday: http://thehill.com/homenews/administration/127983-obama-calls-for-compromise-wont-budge-on-tax-cuts

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