Our April 2008 editorial argued that we are already overtaxed. Now, over two years later, many folks think we should be increasing taxes to pay for the plethora of government spending programs, including stimulus.
Have you noticed how many folks are concerned about the coming tax increases? Investment magazines are urging readers to accelerate income from 2011 to 2010, if possible, to minimize the pain. You must be aware of the increases by now, but at the risk of offending the sensibilities of some, let’s take a look at what’s ahead, assuming that nothing changes between now and the end of the year.
By allowing the Bush-era tax cuts to go away, the result is a tax-bracket shift. The lowest income earners go from 10 to 15%, and the highest income folks go from 35 to 39.6%. Small businesses will bear the brunt of increasing the two top rates. It’s estimated that an additional $8.69 billion will be collected from small businesses in 2011 alone. Since over one half of American workers are employed by small businesses, this new tax hit can’t be good for our economy. Taxes on small businesses create a disincentive to growing the business and/or hiring new workers. The harm this tax increase will inflict on jobs and GDP will strongly outweigh any presumed boost in tax revenues.
Large U.S. companies are sitting on nearly $2 trillion in cash because they are uncertain about where the nation is headed. From health reform to financial reform to energy policy, these companies do not know what to expect from our government. And our government continues to allow the uncertainty to continue.
In addition to the rate increases for individuals, the marriage penalty also returns for 2011. Suffice to say, that’s going to also hurt low- to middle-income workers (consumers). When consumers have less money to buy stuff, the economy suffers. If you are interested in finding out how the coming tax changes will affect you, check out the website www.MyTaxBurden.org.
While it’s possible some of the tax breaks may be retained, the uncertainty itself is having an impact on the economy. The Joint Committee on Taxation has found that raising the lowest bracket from 10 to 15% will cost 88 million taxpayers an average of $503 in 2011. The same study found that the reduction of the child tax credit from $1,000 to $500 per child will cost 31 million families an average of $1,033 next year. The Making Work Pay credit is also scheduled to expire with 2010.
Analysts at Deutsche Bank believe that allowing the anticipated tax increases to occur without fixing the Alternative Minimum Tax will be enough to “push the economy to a stalling point.” In agreement with this finding, researchers from Macroeconomic Advisors found that letting all of the tax breaks expire will trim the growth in the economy by 0.9%. Since growth is expected to be just slightly north of 1%, that’s a stall.
What can you do about it? You can prepare, perhaps in the way recommended by the financial magazines. You can also make your voice and your concerns heard in the voting booth. In about three weeks (or less), we will be given the opportunity to register our disapproval with current policy by “voting the bums out.” You should look at who believes increasing taxes are a good thing, and vote for the other person. Pay attention to what has been done recently without consideration of the will of the people. If your congressmen have pursued a course of action that is opposed to the desires of their constituents, that’s not representation. If your congressmen are not your representatives, vote them out and vote for someone who will represent you.
A recent WSJ editorial sums it up by saying, “Never before has government tried to do so much and achieved so little.” They also said, ”If prosperity were a function of government stimulus, our economy should be booming.” And if the $800 billion already spent hasn’t brought recovery, why would anyone think that spending more will be better? One must question the wisdom of politicians who think like that. The voting booth is the place to keep the unwise from returning to office, where they can inflict further economic damage.
When considering stimulus spending and the accompanying taxes, Sir Winston Churchill summed it up best when he said, “We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” IH