On the heels of the widespread exposure of President Obama’s health care law as a massive middle-class tax hike, his decision to bring back his infamous plan for “tax hikes on the rich” is an economic and political disaster.
The Wall Street Journal recently analyzed the impact of Obama’s health care mandate tax and concluded: “It is now undeniable that Mr. Obama has imposed the largest tax increase in history on the middle class.” So middle-class voters with serious economic anxiety will be understandably skeptical about the president’s latest promise that his next round of tax hikes will spare them.
Moreover, Obama’s claim that a partisan stalemate is to blame for impending tax hikes obscures the fact that when Democrats controlled every lever of power in Washington, they did nothing to cancel the tax hikes, instead focusing almost exclusively on a health care bill that piled even more taxes on the middle class.
Consider the case of Americans who built up value in a home their entire lives and never made more than a modest annual income. They will be “rich” according to Obama in the one year they sell that home – and subject to a hefty tax hike with the new health care surtax on capital gains taking the tax above the exempt amount from 15 percent now to 23.8 percent next year.
That hefty increase in capital gains and the even bigger, near tripling of the dividend tax from 15 percent to 43.3 will trigger a massive stock market sell-off that will wallop the retirement accounts of people of all income levels. Economist Don Luskin has estimated that allowing these provisions to expire as Obama today proposed will cause a 30 percent collapse in the stock market – bad news for every American hoping to retire or already living out of a retirement account.
The stock market impact and the direct impact of higher taxes on small businesses will hurt the employment prospects of millions of Americans in an already sputtering economy. Bloomberg News recently reported: “President Barack Obama’s plan to raise tax rates for the top 2 percent of U.S. households would mean higher taxes on 53 percent of business income reported on individual returns, according to the Joint Committee on Taxation.”
Such a huge tax hike on small businesses – who comprise the overwhelmingly majority of upper-income individual tax filers – will negatively impact not just business owners but every worker on the margin of being hired or laid off.
Obama didn’t mention it Monday, but one of the “tax hikes on the rich” he has favored, and presumably would include in his plan, is to allowing the death tax to jump from its current 35 percent rate above $5 million to a confiscatory 55 percent rate on everything above $1 million -- this will put a lot of family businesses and farms out of business.
Many Americans would consider accepting these tax hikes, even with all the economic pain they would bring, if they actually believed they would be used to balance the budget. But Obama has done nothing to cut federal spending, and when Democrats controlled the House and had a supermajority in the Senate Obama used it to dramatically increase spending even faster than he raised taxes. Every dollar of his new tax hike is therefore almost certain to be spent on more wasteful spending.
The bottom line is: the smart economic and political play with the American electorate was to declare that there would be no more tax hikes this year, period. Now we have to watch another Washington game of chicken with the USeconomy teetering in the balance. Obama has failed another test of leadership.