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  • Morning Bell: Stopping the Largest Tax Hike in History

    The largest tax hike in history is due to strike the United States on January 1, 2013. Known as “Taxmageddon,” it would impose $494 billion in higher taxes on the American people in the first year. So terrible would be its impact that yesterday Fed Chairman Ben Bernanke warned Senate Democrats that the country is headed toward a “fiscal cliff” and that Congress must deal with the impending tax nightmare.

    On Wednesday, House Speaker John Boehner (R-OH) announced that his chamber will take up the issue before the November election. Knowing Washington’s general reluctance to do anything of substance in an election year, Boehner’s announcement was welcome news given the disastrous ramifications the threat of such a massive tax hike is already having on the economy. That’s according to Mohammed El-Erian, CEO of Pimco, the world’s largest bond trading firm. El-Erian argues a “prolonged political inaction is likely to postpone building plants and purchasing equipment and to discourage them from hiring.” And that is only an inkling of the blow that would strike the economy if these tax hikes actually took effect.

    How could nearly half a trillion dollars in higher taxes hit the American people so fast? What hath prior Congresses wrought? Heritage’s Curtis Dubay explains that the tax hikes come from a series of expiring tax cuts and the imposition of even more new taxes. And Heritage’s J.D. Foster writes that Americans can expect to see the following tax consequences starting next year:

    - Income tax rates shoot up,
    - The child credit is cut in half,
    - The marriage penalty roars back,
    - The capital gains tax rate goes up,
    - The dividend tax rate soars,
    - The payroll tax rate jumps two percentage points,
    - The death tax is restored to its punitive past,
    - The Alternative Minimum Tax relief expires, and
    - A uniquely pernicious additional payroll tax hike from Obamacare takes effect.

    Taxmageddon not the only tax problem. A consensus is coalescing in favor of fundamental tax reform, and many members of Congress understandably want real progress. Fortunately, there’s a solution if Congress gets its act together and decides to take action. Foster writes that solving America’s tax problem should be a simple two-step process:

    Step 1) Prevent Taxmageddon. If Congress doesn’t act, Foster says, “The effects on families and businesses would be devastating; the effects on the economy no less so. Congress should make current tax policy permanent and eliminate, once and for all, this cavalcade of tax hikes.” Washington should take action before the election and before the tax hikes hit in order to bring more certainty to the economy and give taxpayers much-needed relief. Taxmageddon is anti-tax reform, a big step in the wrong direction.

    Step 2) Usher in true tax reform. America’s tax code inhibits growth and bedevils taxpayers with its maddening complexity. Having prevented a big step in the wrong direction with Taxmageddon, Congress should then lower marginal tax rates and eliminate taxes on saving and investment while eliminating the many ill-advised deductions, exemptions, and credits that distort the economy and clutter the tax code. Foster points to Heritage’s New Flat Tax, contained in the Saving the American Dream Plan, as the best way to simplify the tax code, make it more fair, and encourage the kind of economic recovery America needs.

    Speaker Boehner warned that if Congress does not take action soon, “We’re going to have this mess all stacked up until after the election. And you want to talk about a train wreck? You’re talking about a big one.” He’s right. The American people can’t afford the $494 billion Taxmageddon train wreck, and the time is ripe this summer for Congress to do something to prevent it.

    Quick Hits:

    Posted in Economics [slideshow_deploy]

    30 Responses to Morning Bell: Stopping the Largest Tax Hike in History

    1. Mary......WI says:

      Other than making sure Obama and dems are voted OUT of office in Nov what else can concerned Americans do short of a revolution. Obama doesn't care what the American people think….he's a dictator.

    2. janie shimer says:

      The Republicans should continue to pass this kind of legislation and let the Dems refuse to vote. It negates the entire Obama election strategy. Also wish Romney would stop defending himself and paint the picture of how the US can be changed to reflect policies of growth. He needs to offer a vision, his vision of the next 4 years under Romney. Has to be something that provides young people with hope for the future.

    3. tdupuy says:

      I think Heritage needs to begin a dialogue on a Flat Income Tax vs the flat, across the board Fair Tax. I personally believe any form of income tax is counter productive to investment and growth and actually promotes the crony capitalism and outright corruption that now consume government and make it less responsive at all levels. The Fair Tax is also far simpler, yet more progressive than the income tax and would make America the cradle of innovation economic growth once again.
      Let's make fundamental government reform a front burner issue where term limits, a robust Balanced Budget Amendment and tax reform restore the founding American principle of self government in the form of a decentralized, republican government.

    4. Bob Ulrickson says:

      Why do you say "Congress" must take action, when it is clearly the Senate that is blocking tax reform?
      Not to mention the White House.

    5. Lloyd Scallan says:

      God help us if John Boehner is the only hope we have to stop "Taxmageddon" Let's not forget under
      Boehner's so called "leadership" we're in this mess. Boehner, like most of Congress, are not interested in saving the American people. His only concern is saving his speakership. He continues to cut deals with Obama and the Dems, behind closed doors. Boehner is already making deals to keep Holder out of hot water with "Fast & Furious". Remember the deal he tried to make with Obama when he agreed to increase taxes, but thankfully Obama backed out. Like most of the present Republican leadership, we cannot and must not depend on them to save us. Afterall, look who they shoved down our throats to
      run against Obama in 2008. Now let's look at who they are shoving down our throats today.

    6. stephen says:

      In the past the relationship of the President vs Congress has been rather bumpy, but I saw this coming when the President put the Congress in check, knowing this would force them to get some work done, so here we are, Congress your on the clock!

    7. Tom says:

      I cannot remember if it was spelled out so clear when it was a tax decrease of that magnitude.

    8. Simple but big
      Fed Fund election–6 months-3 primary 3 general–free equal tv time–debate a week=12=adequate to evaluate candidates no $$$

      Since Congress + White House will not need campaign funds BAN anything with a financial value gift to them

      Progressive Flat Tax by group

      • Stirling says:

        "Progressive Flat Tax" – wow, now that seems like annother word for "Tax the Rich" more then everyone else.. Clarence in case your not aware of the term "progressive" it's a well known term for unequality. A Flat Tax should not punish one group over annother. Only in a socialist country like France would you hear that kind of tax purposal. Re-distribution of wealth is bad in any country, and dis-insentivises success.

    9. F.D O'Toole says:

      When Heritage talks about the need for bipartisan tax reform, it has to be aware that the Democrats will never cede any ground in the long run. Tax revenues are the fuel that keeps their hot air balloon aloft. Look at what happened to the Reagan tax cuts which were accompanied by a loss of deductions in the 1986 tax reform. Soon after, the rates went up but the deductions were lost forever. "Responsible" Republicans eventually become the bill collector for the welfare state having gained none of the popular upside and all of the unpopular downside. (See termination of career of President H.W. Bush).

    10. zmaint says:

      Sounds good, but the problem is that Federal Income Tax on individuals is still unConstitutional no matter how you dress it up. This government is as crooked as a $3 bill and nothing will change until we can clean the corruption out of all the branches. The BEST way to start would be to pass an Amendment barring anyone from voting while they are recieving any AID from the government. That way ACTUAL taxpayers would be running the show, not corrupt politicians using out dollars to provide handouts to buy votes – and THEN impose term limits. "direct Taxes shall be apportioned among the several States" – Article 1 Section 2 of the Constitution.

      The U.S. supreme Court said in 1916 that the 16th Amendment did
      not change the Constitution because nothing was
      repealed or altered and the Constitution cannot conflict with itself.
      The Court also said that the 16th Amendment merely prevented
      the "income duty" from being taken out of the category of INDIRECT
      TAX and placed in the category of DIRECT TAX.
      "the provisions of the Sixteenth Amendment conferred no new power of taxation…"
      (Brushaber v. Union Pacific R.R. Co., 240 US, page 16).

    11. Oscar Brown says:

      Someone should explain to Sen. Reid that if the Senate continues it "do nothing" policy, the Democrats have no way to "spin" this as the Republicans' fault. Can you say, "housecleaning"?

    12. Acetracy says:

      Let's put this into perspective. A carpenter making $40K a year, with a net worth under $1million, would hardly see any changes in his taxes when the Bush Tax Cut of 2003 expires next year. As a matter of fact, this same carpenter never saw his taxes go down by any significant amount in the past 30 years esp. considering the triple rate increase in Social Security tax.

      Plus, this same carpenter probably has no access to healthcare that he can afford. His local taxes such as real estate, sales, and excise taxes have tripled in the past 30 years. No 1038 exchanges are in his portfolio. No carried interest tax rate of 15% for his hard labor. So in reality his total taxes paid are close to 50% of his income. Compare that to your favorite prez candidate, Mr Romney's effective tax rate of 13% and it is clear who you are concerned with in this article: The Super Rich.

      Using the term "death tax" is extremely misleading. Estate tax was first introduced in this country to help pay for world wars the country was fighting. What kind of fiscal responsible Republican would pass income and estate tax cuts while the country fights 2 wars, one now the longest running war yet in our short history.

      INdeed the US tax code is a mess. WHy? Because the powerful monied lobbyists get Congress to slip in codes to benefit limited partnerships, "foreign" earned income, oil, mining, commercial real-estate, private equity, derivatives, etc. If a carpenter is paying an effective tax rate of up to 50%, so should each and every individual, trust, partnership, corporation, etc.

      • Stirling says:

        You seem to want to brand everything in the 99% v.s the 1% terms here. The falacy in your arguement is that your comparing "apples to oranges" since the "carpenter" and "Romney" differ in the income vehicles that they use, and the tax applications the IRS treats them with.

        When you play "Class warfare" it is offensive to anyone who strives to succeed from the 99% to the 1% and provide for their families and communities. The 1% are the Job creators who employ us 99%'ers and provide carreers that feed our families and give us financial freedoms.

        What I will agree with you is that the Government is the problem. Understand at some point you may want to be "Rich", thus don't bash what you want to attain at some point.

      • Juan Martinez says:

        Acetracy, you nailed it. Heritage is all wrong on tax policy. Often, they seem just a mouth piece for special interests that wish to have all the benefits of government spending, while seeking to minimize personal responsibility for funding that spending.

      • Wayne Peterkin says:

        Not true. The middle and lower tax rates benefited as much or more than higher incomes did under the Bush tax rates. It is a complete fallacy that the Bush tax plan only helped higher incomes. Perpetuating a lie does not make it true, which is what you are trying to do. The tax code is a mess because of politicians using it to for political purposes. I argue that businesses should pay no income taxes at all because they are counter-productive to the economy overall. Taxes should occur after businesses can reinvest their profits, not before.

      • muskegonlibertarian says:

        Actually we're returning to the tax rates we had when Clinton was President. Also compare US tax rates to those in the rest of the developed world. We are one of the lowest if not the lowest. Facts, not propaganda. Neither side (Democrat, Republican) is telling the truth. Obamacare however will be a true disaster far worse than any raise in tax rates. The solution to this is simple. Repeal prescription laws, repeal Obamacare. Everyone gets access to medicine without having to bribe a doctor for his permission to buy medicine. The licensed professions are worse than the banks. The banks at least have competition from credit unions. No such competition exists with the "professions". Dump the jackass, the elephant, the tea pot. Vote Libertarian for a Change!

    13. Blair Franconia, NH says:

      Obama can't run on his record so he'll have to create a diversion.

    14. Red Baker says:

      In 2013 President Romney and the Republican majorities in the Senate and House will quickly institute an economic growth package which will include repealing all of Taxmageddon. If necessary the Senate should ditch the 60-vote filibuster rule, and be able to save the American economy from Taxmageddon.
      Legislative Agenda:
      1. Repeal Obamacare and institute genuine, cost-centered medical reform – tort reform, require health savings accounts and co-pays for everyone, abolish mandates, abolish state line limits on purchasing health insurance, establish group medical policies open to everyone, and medical pools for the high-risk, etc.
      2. Tax reform – vastly simplify the tax code, unleash the trillions in cash on the sidelines and overseas, eliminate the $300 billion spent on tax preparation.
      3. Defang regulation costs to take the handcuffs off business and finance. Goal is $1 trillion reduction in the cost of annual regulatory compliance.
      4. Pass E-Verify to open up 5 million jobs for American citizens
      5. Open the floodgates for oil, gas and coal
      6. Repudiate the intragovernmental debt of $4.7 trillion, since we owe it to ourselves anyway.
      7. Print money to buy up $8 trillion in US bonds. Require all banks to go to 100% reserve requirement, soaking up that $8 trillion. The national debt thus becomes $4.3 trillion instead of $16 trillion.
      8. Forbid future borrowing for any purpose. If there is a war, confiscate wealth to pay for it if necessary.
      9. Rein in the Federal Reserve
      That's a good start. The economy will take off like a rocket.

    15. Red Baker says:

      Forgot one
      10. Limit federal spending to 18% of GDP.

    16. Mike says:

      Vote out obama and vote out new taxes.

    17. Rick O says:

      I really expect better from the Heritage Foundation! This is just an income tax. The Fair Tax taxes the underground economy too. The Fair Tax taxes drug dealers, prostitutes, illegal immigrants & the general low-life types that work under the table. Again I expect better from the Heritage Foundation!

    18. Bobbie says:

      well, when any tax reform comes lets be sure it's replacing and not adding to the mess the government created!

    19. Charles Nystrom says:

      Based on performance over the past fifteen months, I do not expect much from Speaker Boehner's announcement to tackle the impending tax explosion. To date he has been long on promises and virtully batting zero on conservative measures: Think budgets.

    20. Wayne Peterkin says:

      I agree with HFs assessment and recommendations. However, I doubt we will see much progress simply because too many Democrats salivate over higher taxes and insist on tax increases as part of any spending reduction deals. The bright side is that if no deal is made, one of two scenarios may play out. Either changes will take place after the election that will closely follow HFs recommendations or Taxmageddon will actually occur causing a major revolt from the American people along with the economic chaos. While chaos is a bad thing, the revolt could force the real changes needed.

    21. Harry E. Schauwecker says:

      I sent you a comment a couple weeks ago that had several questions directed to Heritage! They were not
      answered or acknowledged ! Now I know why, they were probably posted on this Blog but never read by Heritage. Does Heritage communicate with its members other than to ask for money?

      Has anyone else noticed this change in Heritage recently?

    22. RennyG says:

      How can a person "openly" say I am not going to do a budget, "for three years???" How can he just say "NO" to anything that has to be done especially if it is against the Constitution. Well all these questions have been answered, "HE JUST DID THEM!!"
      Now, my real question is this, "How in the hell does he still have the job that he does???"
      Tell me these irresponsible people are "GODS??????" The answer must be "yes," because he is still there, along with all the other irresponsible people in the government!! This fary tail has to be re-written!!

    23. Al from Fl says:

      Puerto Rico and Sweden both turned around their sick economy by cutting both taxes and spending. It works (of course it does as any family knows). Democrats will not cede that point and will continue to tax and spend because it is power that they crave – nothing more, nothing less. As for the consequences, so long as they can ensure their own personal prosperity, they could care less. Add to that, the politician that focus's mostly on his reelection and allows special interests to forge the way, legislatively, and we have the mess we're in. Pres Obama and the secular progressives will press on in spite of the evidence that their policies don't work so long as the people vote for them .

    24. Steve says:

      Well, one way to approach this train wreck is to let it occur and dedicate all the new revenue to reducing the 16 trillion dollar debt….. and in just 32 years we would have the National Debt paid off. Makes your knees weak just thinking about it.

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