Primer on Obama’s Tax Increases

August/05/2012 16:38PM
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Would you do all this to collect an additinal $80 billion from the so-called rich in America? Assess the damage.  Jobs lost, GDP stalled, lower wages, and less investment for growth by business?
Class warfare is one thing. But, intentionally destroying an already damaged economy is another.
Obama, is either clueless, or so desparate he will wreck the economy to have a campaign theme that takes eyes away from the damage he has already done.


Tax Fact Answers


Point 1:

Is it true that if we let taxes increase on higher-income taxpayers and small businesses, only 2 or 3 percent of taxpayers will be affected?



Point 2


Will this tax hike harm small businesses?

According to an July 2012 study by Doug Holtz-Eakin at the American Action Forum, if Congress and the President fail to act, the resulting tax increase would hurt overall economic growth and harm small business directly, including:

  • a 6 percentage point drop in GDP that would increase unemployment by 2 percentage points, or to over 10%, resulting in an additional 2.8 million people unemployed;
  • Higher marginal tax rates come 2013 that would reduce the probability that a small business entrepreneur would add to payrolls by roughly 18% and would diminish the growth in payrolls by over 5%;
  • The probability that a small business undertakes expansion falls by nearly 15%, and reduces the capital outlays of those that do by almost 20%.



Point 3


How will these tax hikes impact economic growth and job creation?

Various economic experts have weighed in with their take on just how Taxmageddon and the Fiscal Cliff will affect economic growth. Here’s what they had to say:

  • A May 2012 CBO report analyzes the economic effects of the fiscal cliff. Under those fiscal conditions, growth in real (inflation-adjusted) gross domestic product (GDP) in calendar year 2013 will be just 0.5%, CBO expects—with the economy projected to contract at an annual rate of 1.3% in the first half of the year and expand at an annual rate of 2.3% in the second half. Given the pattern of past recessions as identified by the National Bureau of Economic Research, such a contraction in output in the first half of 2013 would probably be judged to be a recession.
  • A July 2012 Ernst & Young study examining the economic impact of the higher tax rates advocated by the President and others on high-income taxpayers concludes that that raising tax rates on Americans earning more than $250,000 over time would result in:
    • Fewer jobs — 710,000 fewer jobs;
    • Lower wages — 1.8 percent lower;
    • Less investment — 2.4 percent less; and
    • A smaller economy — 1.3 percent smaller.



Point 4


Why are we facing all of these tax increases?

The tax cuts that were enacted in 2001 and 2003 were then renewed in 2010.  Congress’ 2-year renewal of those tax rates means that they are set to automatically expire at the end of 2012.  As those rates return to their pre-2001 and 2003 numbers, in effect that will mean a tax increase on Americans.

What taxes are set to increase?

If Congress doesn’t act before January 1, 2013, then the following taxes are set to increase at that time:

  • Marginal tax rates will increase:
    • The 10% tax bracket will expire, reverting to 15%.
    • The 25% tax rate will rise to 28%.
    • The 28% rate will rise to 31%.
    • The 33% rate will rise to 36%.
    • The 35% rate will rise to 39.6%.
  • The tax rate on long-term capital gains will rise from 15% to 20%.
  • The tax rate on qualified dividends will rise from 15% to ordinary wage tax rates.
  • The PEP and Pease provisions will be restored, rescinding from certain taxpayers the value of some exemptions and deductions.
  • The two “marriage penalty elimination” provisions will expire, so that:
    • The standard deduction for married couples will fall, no longer double what it is for single filers; and
    • The ceiling of the 15% bracket for married couples will fall, no longer double what it is for single filers.
  • The child tax credit will fall from $1,000 to $500.
  • The estate tax will be restored with an exemption level of $1 million (per spouse) and rates of 55%.

But wait! There’s more!  The taxes that were enacted as part of the Patient Protection and Accordable Care Act will also go into effect in 2013.  That means, on top of all of the above:

  • The 3.8% surtax on investment income
  • An additional 0.9 percentage Medicare Hospital Insurance tax (HI tax) on self-employed individuals and employees with respect to earnings and wages received during the year above $200,000 for individuals, and above $250,000 for joint filers
  • $2,500 limitation on FSA contributions
  • 2.3% excise tax on medical devices
  • Increase in threshold for claiming an itemized deduction for unreimbursed medical expenses for regular tax purposes from 7.5% of AGI to 10% (except for those over 65)






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