April 1, 2010
THE RICH CAN'T PAY FOR OBAMACARE
President Barack Obama's new health care legislation aims to raise $20 billion over 10 years to pay for the extensive new entitlements. How? By slapping a 3.8 percent "Medicare tax" on interest and rental income, dividends and capital gains of couples earning more than $250,000, or singles with more than $200,000, along with raising the top two individual income tax rates and other measures.
But it won't work, says Alan Reynolds, a senior fellow with the Cato Institute:
* The maximum tax rate fell to 28 percent in 1988-1990 from 50 percent in 1986, yet individual income tax receipts rose to 8.3 percent of gross domestic product (GDP) in 1989 from 7.9 percent in 1986.
* The top tax rate rose to 31 percent in 1991 and revenue fell to 7.6 percent of GDP in 1992.
* The top tax rate was increased to 39.6 percent in 1993, along with numerous other major revenue enhancers, yet individual tax revenues were only 7.8 percent of GDP in 1993, 8.1 percent in 1994 and did not get back to the 1989 level until 1995.
According to Reynolds, a few of the ways that taxpayers will react to the Obama administration's tax plans include:
* Professionals and companies who currently file under the individual income tax as partnerships, LLCs or Subchapter S corporations will form C-corporations to shelter income.
* Investors who jumped into dividend-paying stocks after 2003 when the tax rate fell to 15 percent will dump many of those shares in favor of tax-free municipal bonds if the dividend tax goes up to 23.8 percent as planned.
* Faced with a 23.8 percent capital gains tax, high-income investors will avoid realizing gains in taxable accounts unless they have offsetting losses.
In short, when marginal tax rates go up, the amount of reported income goes down. The belief that higher tax rates on the rich could eventually raise significant sums over the next decade is a dangerous delusion, because it means the already horrific estimates of long-term deficits are seriously understated, says Reynolds.
Source: Alan Reynolds, "The Rich Can't Pay for ObamaCare," Wall Street Journal, March 30, 2010.
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There's not an economist in the whole world who believes a government should raise taxes during a deep recession. Unfortunately, that's exactly what the White House is doing. ObamaCare is only one week old and already it is slamming employers and retirees. Numerous S&P 500 businesses announced this week that health care legislation was forcing them to declare $4.5 billion in lost earnings. At the stroke of President Obama's pen, AT&T experienced a $1 billion tax hike, John Deere was hit with $150 million and Caterpillar recorded $100 million.
Daily Policy Digest
March 31, 2010
OBAMA'S $3,000,000,000,000 TAX HIKE
When he released his new budget proposal on February 1, President Barack Obama asserted that the government "simply cannot continue to spend as if deficits don't have consequences; as if waste doesn't matter; as if the hard-earned tax dollars of the American people can be treated like Monopoly money; as if we can ignore this challenge for another generation."
Yet the President's new budget does exactly that, according to Brian Riedl, the Grover M. Hermann Fellow in Federal Budgetary Affairs at the Heritage Foundation:
* The budget would permanently expand the federal government by 3 percent of gross domestic product over 2007 prerecession levels.
* Taxes would be raised on all Americans by nearly $3 trillion over the next decade.
* It would raise taxes for 3.2 million small businesses and upper-income taxpayers by an average of $300,000 over the next decade.
* For every dollar spent in 2010, 42 cents would be borrowed.
In addition, the budget:
* Would run a $1.6 trillion deficit in 2010 -- $143 billion higher than the recession-driven 2009 deficit.
* Would leave permanent deficits that top $1 trillion as late as 2020.
* Would dump an additional $74,000 per household of debt into the laps of our children and grandchildren.
* Would double the publicly held national debt to over $18 trillion.
According to Riedl, President Obama has offered a budget that does nothing to address the nation's serious short-term and long-term fiscal problems -- and indeed makes them worse.
Source: Brian Riedl, "Obama's $3,000,000,000,000 Tax Hike," Wall Street Journal, March 10, 2010.
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