This week, Congress is probably going to adjourn for the last time before the November elections. There’s a lot Congress hasn’t done this year, but at the top of the list has to be preventing the start of the largest tax hike in American history. In the process, they’ve thrown every American who pays taxes, every small business, and anyone who cares about prosperity and job growth into utter confusion and panic. How did this happen?
Back in 2001, President Bush was moving his tax cut package through a Republican Congress. As modern political analysts know, it takes 60 votes to control the Senate, not a simple majority. Back then, Republicans only had 50 votes to start the year, and 49 to finish it (after Senator Jim Jeffords (R-Vt.) defected. In order to get badly-needed tax relief through the Senate, a process known as “reconciliation” had to be employed. Under this strategy, a tax cut bill only requires 51 votes (50 if the Vice-President is available to break a tie), but there’s a price to pay: the tax cut in question can only last for as long as the budget resolution—in this case, ten years.
The decision was made to use this strategy. In the process, the top marginal tax rate was eventually cut from 39.6 percent to 35 percent. The death tax would be slowly phased out. Pro-family tax cuts were introduced or expanded. In 2003, the reconciliation strategy was again employed to cut the capital gains tax rate from 20 to 15 percent, and the dividends tax rate from ordinary income all the way down to 15 percent.
It’s important to note that the only way this tax relief could pass out of the Senate was to use reconciliation. President Bush and Congressional Republicans would have used regular order (with its resultant permanent tax cuts) if they could. There’s only one reason they could not—Senate Democrats would not side with them in sufficient numbers to get to 60 votes. If they had, the current debate over tax hikes would not even be happening.
The clock has almost finished ticking. If Congress does nothing (as appears increasingly-likely), taxes will rise for every American starting on the next New Year’s Day--January of 2011. The lowest income tax bracket will rise from 10 to 15 percent. The highest tax bracket (the one at which a majority of small business profits pay tax) will rise from 35 to 39.6 percent. The death tax will go from non-existent in 2010 to a sky-high 55 percent top rate in 2011. The capital gains tax will rise from 15 to 20 percent. The dividends tax rate will rise from 15 to 39.6 percent. The marriage penalty will return for all taxpayers. The child tax credit will be cut in half to $500.
That’s just the beginning of this decade’s tax hikes. The alternative minimum tax (AMT) has been left un-patched by Congress. That means the number of AMT taxpayers in 2011 will rise from 4 million to 28 million. Obamacare’s two-dozen tax hikes will begin to kick in, which will result in about $500 billion of higher taxes on families, small businesses, and savers. Put it all together, and we’re dealing with the largest tax hikes in history.
Why didn’t Congress prevent these tax hikes from happening? At the very least, why didn’t they do what they frequently promised to do—namely, kill the tax hike for families making less than $250,000? One answer might be that they never intended to hold anyone harmless from the 2011 tax hikes.
Speaker Pelosi and Majority Leader Reid took their current positions in January of 2007. They have controlled Congress for four years. President Obama strolled into the White House in January of 2009. He has been the leader of his party for two years. Yet in that time, there has been absolutely no movement on preventing this tax increase from happening, even on families below the un-favored line of $250,000. They had ample opportunity at politically-advantageous times to get this done. The reason they did not has much to do with their views on the size of government.
For the last half-century, federal spending has siphoned off about 21 percent of our nation’s annual output. That number is expected to be at or around 25 percent this year and for the remainder of the decade (according to President Obama’s own budget and projections by the Congressional Budget Office). Meanwhile, federal tax revenues during this time have eaten up 18 percent of the economy (give or take a percentage point or two depending on the economy at the time). A structural over-spending level (i.e., “deficit”) of 3 percent is acceptable. But what about 6 percent? What about 7 percent? There’s no way even Congressional Democrat liberals could live with deficit spending that high. The rest of the world would stop lending us money, for one thing. The looming over-spending commitments made to the Baby Boomers make this especially-true.
Liberals believe in bigger government, no matter the cost. Economic reality tells them that this must be financed by bigger tax bites, lest the world cut off the credit card. That means much higher taxes on everyone, from Bill Gates to the kid on the corner with the lemonade stand. Congressional Democrats and President Obama want higher taxes on everyone, and their lack of action this fall ensures that they’re going to get it. Of course they have to have pretended to want to carve out families making less than $250,000, but they never had any intention of doing so.
This election is mainly about spending and debt, but closely-related (and, hopefully, hotly-debated) should be the full, conscious, and active participation of Congressional Democrats and President Obama in the largest tax hike of our entire lives.
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