Taxmeggedon

 American taxpayers are at the precipice of exceptionally high tax increases, scheduled to begin in January.  Those hikes signal very bad news for anyone seeking employment, as well as for families already struggling to make ends meet.

     34% of the increases are due to the expiring Bush Tax Cuts, 25% from the expiration of the payroll tax cut, and the remainder from various provisions of President Obama’s health care reforms.  Top rates will climb to 39.6% from 35%, the child tax credit would shrink, the capital gains tax would soar to 20% from 15%, (which could play the major role in a harsh employment picture) and the estate tax would affect more families, as noted in Heritage/CRS reports.

     There is some level of agreement that those making less than $200,000 should be shielded from some increases.  However, the implementation of any increase in this era of rampant unemployment, underemployment, and long term unemployment will affect taxpayers across the board. 

    The ongoing recession and the continued unemployment crisis make any tax hike a very risky business.  In a Wall Street Journal Article, Harvard economics professor Martin Feldstein noted that “Historians and economists who’ve studied the 1930s conclude that the tax increases passed during that decade derailed the recovery and slowed the decline in unemployment.  That was true of the 1935 tax on corporate earnings and of the 1937 introduction of the payroll tax.  Japan did the same destructive thing by raising the value-added tax rate.”

    Advocates for higher taxes point to the astounding federal deficit, which on May 10 stood at $15,678,869,907,107.48 (according to the National Debt Clock.org) as a reason to raise taxes.  Decades of spending more than revenue taken is, of course, responsible for the dramatic figure, and the last three years have overwhelmingly accelerated that practice.  The deficit in 2008, the last of the prior administration, was $425.7 billion; during the current administration, it has averaged $1.185 trillion per year. 

     Government spending has increased 21.4%, representing a 24% share of the whole U.S. economy, far higher than the 20.7% historical average. 

    Would higher taxes actually reduce the deficit?  An NPR study indicates that it could result in a 17.7% decrease.  But experience demonstrates that the detrimental effect on the economy would offset even that meager impact.  

   As a Heritage report noted, “The Clinton tax hikes slowed economic growth during that decade, despite the common assumption that it was a period of rapid expansion.  It was not until a tax cut later in the decade that growth took off.  Lower rates paved the way for faster growth.  The 2003 Bush tax cuts helped the economy recover from a recession and put in on a stronger footing…”  The argument that tax increases reduce budget deficits lacks substantiation.  A Hoover Institution study noted that as revenues increase, so does spending.

   For job seekers, this is particularly worrisome.  The past three years of sharply higher government spending have seen dramatically higher unemployment rates, and worse, dramatically higher long-term unemployment.  Oddly, unlike the “New Deal” spending in the 1930s, the funds spent over the past three years have produced almost no tangible products, such as the roads, buildings and other large projects under President Roosevelt. 

   History reveals that lowering taxes, as occurred under presidents Kennedy, Reagan, and G.W. Bush, allows unemployment rates to go down, as described by the Tax Foundation.

    Higher tax rates simply cannot substitute for ending irresponsible government spending.