Tax Hikes Would Lead to Recession
The Supreme Court decision on Obamacare paved the way for $675 billion in new taxes over the next decade. But that's just the tip of the iceberg. Unless Congress takes action, tax rates for all tax brackets will increase on January 1, 2013.
Federal Reserve Chairman Ben Bernanke refers to the looming tax hike deadline as a "fiscal cliff" while the media coined the term "Taxmageddon" to describe the magnitude of the economic disruption that will occur if the current tax rates are not renewed.
Congress passed the current tax relief policies in 2001 and 2003. When these lower tax rates were set to expire at the end of 2010, President Obama and Congress had a choice: renew the low tax rates or risk plunging our struggling economy back into recession. Even with persistently high unemployment, President Obama advocated letting the tax cuts expire for anyone earning more than $250,000 per year, whom he expansively redefined as "millionaires." Business leaders and experts repeatedly warned that the tax hikes would hit 50 percent of all small business income, significantly restraining the sector responsible for generating 65 percent of new jobs created between 1993 and 2009. It was only after the president's party and policies met resounding defeat in the historic 2010 midterm elections that commonsense prevailed and the tax cuts were extended for two more years.
Americans may not be so lucky this time around. The president is yet again calling for an end to many of the tax cuts. His latest proposal includes tax hikes for small businesses and families earning $250,000 or more, yet he may not stop there. White House sources indicate that President Obama would be content to let all the tax cuts expire at the end of the year, according to reporting in The New Yorker. Citing "several White House officials," journalist Ryan Lizza reports, "if a deal, or at least the framework for a deal, is not reached before December 31st Obama would allow all the Bush tax cuts to expire.”
If that happens, Americans will be hit with a tax increase of $4.3 trillion over the next 10 years and $300 billion in the first year alone. According to the House Ways and Means Committee, a family of four earning $50,000 per year would owe an extra $2,200 in taxes under the new rates. A single mother earning $36,000 per year would see her tax liability nearly double, resulting in $1,100 in higher taxes. Married senior citizens with an annual fixed income of $40,000 could see a tax increase of $1,700.
The nonpartisan Congressional Budget Office warns that failure to extend the tax cuts and responsibly manage the debt will lead to a 1.3 percent contraction in gross domestic product, officially qualifying the first half of 2013 as a recession. Business leaders already see the writing on the wall. A recent survey found a 12-point drop in the confidence index among 1,650 executives for small- and medium-sized businesses. University of Michigan economist Richard Curtin attributed the survey results to "rising uncertainty about what federal tax and spending reforms will be passed to avoid a nosedive off the 2013 fiscal cliff."
With almost six months left before the tax cuts are set to expire, there is no excuse to allow uncertainty to continue to stall job creation. Congress can and should act immediately to extend the tax cuts for all brackets. The House Republican majority has announced we will vote before August to prevent the tax hikes and begin the process of comprehensive tax reform that will keep rates low, close unfair loopholes, and make America more competitive in world markets.
After 40 straight months of 8 percent or higher unemployment, America's workers deserve some good news. President Obama and congressional Democrats should join House Republicans in extending tax relief and injecting much-needed confidence into the job market.