Tag Archives: January 2013

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CBO: If Bush tax cuts are not renewed, America is headed for another recession

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From the Heritage Foundation.

Excerpt:

About 1.6 million American jobs hang in the balance. That is the clear implication of analysis contained in the annual budget update by the Congressional Budget Office (CBO).

Along with all manner of dire and dreary budget data reflecting President Obama’s budget and economic policies to date, CBO provides its assessment of what would happen if the President and Congress sit on their respective hands and fail to defuse the threats of Taxmageddon and the fiscal cliff. The answer is fairly simple: recession.

As CBO so diplomatically put it, “such fiscal tightening will lead to economic conditions in 2013 that will probably be considered a recession.”

Taxmageddon is the $500 billion tax hike slated to take effect on January 1, while the fiscal cliff consists of Taxmageddon plus various spending reductions—among them the sequestration left over from the disastrous negotiations that led to the Budget Control Act in 2011.

According to CBO’s analysis, if Congress defuses Taxmageddon and the fiscal cliff, then the economy will grow at a tepid 1.7 percent in 2013 and the unemployment rate will remain stuck around 8 percent. But if President Obama and Congress play chicken with Taxmageddon and fail to act, then the economy will contract by about 0.5 percent and the unemployment rate will shoot up to 9.1 percent, about halfway back to the peak from the past recession.

Forget percentages—what does this mean in actual jobs lost if President Obama and Congress fail to act? It means roughly 1.6 million more Americans will be out of work—on top of the 12.8 million who already want to work but can’t find jobs.

Just about every relevant school of economics, from the President’s pure Keynesianism to supply-side and neoclassical persuasions, tells much the same tale on net: Raising tax rates on a weak economy produces a weaker economy. It’s not terribly complicated.

Here’s my advice: This time, let’s elect someone with someone with experience in business administration and economics.

News

Middle class tax rate set to rise to nearly 50% in January 2013

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From the Heritage Foundation’s Foundry blog.

Excerpt:

A middle-class taxpayer’s income is subject to a 25 percent federal income tax. Then there is the federal Social Security and Medicare payroll tax of 13.3 percent in 2012—5.65 percent of that is removed from the employee’s paycheck, and the remaining 7.65 percent is paid by the employer. (In reality, the employee pays the entire 13.3 percent, because the employer’s portion of the tax does not affect the cost of labor: The employer would pay the employee 7.65 percent more if there were no employer’s portion of the payroll tax.)

So the 25 percent federal income tax plus 13.3 Social Security and Medicare payroll taxes equals 38.3 percent going to federal taxes in 2012.

And then there are state taxes. According to the Tax Foundation, the average state’s income tax rate for the middle-class taxpayer is 4.82 percent, which brings the total to 43.12 percent in federal and state taxes. And it’s going higher, thanks to the nearly $500 billion in tax increases for 2013 that some have called Taxmageddon. In January of next year, the federal income tax rate for middle-class taxpayers is scheduled to rise from 25 percent to 28 percent, and the payroll tax is scheduled to rise from 13.3 percent to 15.3 percent. This drives the marginal tax rate based on the aforementioned three taxes to 48.12 percent. Add in state and local property, corporate, excise, and other state and local taxes, and the percentage of each additional dollar that is taxed hovers around 50 percent.

When half of each additional dollar earned is taxed away, taxpayers experience a disincentive to start businesses or expand existing ones. This leads to fewer jobs being created.

It is outrageous that any dollar earned by a middle-class taxpayer would go as much to taxes as to supporting the taxpayer’s family. The government didn’t earn the taxpayer’s paycheck and shouldn’t be entitled to it.

People like me really do think about things like this – about getting up and going to work every day to earn half of what I am worth. Of giving up half my salary so that the Georgetown University student can have free contraception paid for by me. I am one of those people who pays about 45% of my income (federal, state and local) in taxes. If I had more of my own money, I could be following my own dreams – maybe to do a Ph.D and teach, or start a business, or become a minister. But those things can’t happen, because people keep voting for more and more benefits for themselves on my back – so that they don’t have to be burdened to make the decisions that it takes to take care of themselves and their families.

That’s what being a Democrat means – it means persisting in perpetual adolescence at the expense of people like me. It means taking away my dreams so that they can have my standard of living without having to work or play by the rules. Being a Democrat means piling up trillions of dollars of debt onto people who haven’t even been born – so that feminists can have free contraceptives. That’s what a Democrat is.