Maryland on the Road to Serfdom?

Originally posted at FreedomWorks.org.

I have lived in the state of Maryland my entire life. I was born and raised in the suburbs near Washington, D.C. and attended college in western Maryland. Now that I have recently received my college diploma, I plan on fleeing to the neighboring and lower-tax state of Virginia as soon as possible. There are plenty of great things about Maryland (see: world-famous crabs and the beautiful mountains of western Maryland), but the high taxes are not one of them. It’s time for me to pack up and leave my spendthrift home state.

Maryland is on the brink of fiscal disaster. According to Americans for Tax Reform, “Maryland is speeding down the road to serfdom.” In Noble Prize-winning economist F.A. Hayek’s classic book The Road to Serfdom, he precisely warns us against many of the government policies that Maryland has enacted. The Road to Serfdom was not meant to be a how-to manual. The state has moved in a tyrannical direction that crushes individual freedom and prosperity.

Annapolis has a severe spending problem. General Fund spending in Maryland has increased by 7 percent between 2007 and 2010. Even though the state has one of the highest budget deficits in the nation, politicians have refused to bring spending under control. Public-sector pensions are simply bloated and unsustainable in the long-run. The Maryland Public Policy Institute states that “here in Maryland, the state government pays out over $210 million per month to retired public employees. It’s a staggering number, particularly in light of the state’s equally staggering $1.6 billion budget deficit.”

Raising taxes is never the solution. Yet, Maryland politicians have repeatedly attempted—and failed—to close budget deficits by hiking taxes. The state has hiked alcohol taxes, cigarette taxes and doubled tolls on their bridges and roads. Montgomery County, Maryland has passed a 5-cent bag tax on both paper and plastic bags that kicks in on January 1, 2012. In 2008, the state sales tax increased from 5 percent to 6 percent which is higher than the national average.

Maryland ranks 44th in the Tax Foundation’s State Business Tax Climate Index which factors in five areas of taxation: corporate taxes, individual income tax, sales tax, unemployment insurance taxes and property taxes. All of Maryland’s neighboring states ranked significantly better. States with low or no income taxes attract a great deal of entrepreneurs and productive citizens. Maryland Governor Martin O’Malley raised income tax levels on wealthy households to 6.25 percent from 4.75 percent in 2008. Maryland’s millionaire tax back fired. It is estimated that Maryland lost $1 billion because one-third of wealthy residents moved or filed their taxes in other states with lower tax burdens.

Many Maryland politicians have been bought by powerful unions. The Democrat-controlled state legislature recently passed a law to force state employees to pay union dues even if they do not wish to be a member. This will affect 12,500 government employees who have chosen not to join a union for their own personal reasons. As Americans for Tax Reform says, “the state employee unions donated tens of thousands of dollars to the Maryland Democrat Party and held rallies for the Democrat Governor, O’Malley…With the unions promising to raise hundreds of thousands of dollars for the 2012 elections, this was just a corrupt way for politicians to funnel themselves more money for their campaigns.”

A Mercatus Center study titled “Freedom in the 50 States” ranks Maryland dead last in personal freedom. The state is no friend of school choice. Maryland has burdensome homeschooling laws that require all curricula to be approved by the government. The Mercatus Center states that in Maryland “centralized land-use planning is very advanced, labor regulation is severe, health insurance coverage mandates adds a whopping 50.9 percent to the cost of policies, occupational licensing is much more pervasive than average, and eminent-domain abuses is almost totally unchecked.”

The 2010 census finds that more Americans are migrating from high to low tax states. One great thing about our federalist system is that states are laboratories of democracy. Maryland’s experiment with high taxation and excessive government spending has failed. The state is a clear lesson of what not to do. Unless Maryland immediately shapes up by reducing its tax burden and job-killing regulations, many residents like me are likely to vote with their feet by moving out of the reckless state.

Census Data: Americans Migrating From High to Low Tax States

Originally posted at FreedomWorks.

On Tuesday, Census Bureau director Robert Groves announced the first results of the 2010 Census. The findings were not so surprising. Due to population changes, 12 House seats will shift. States with low or no income tax gained more representative seats in the House and Senate. Those states with a high income tax lost seats. Just as we expected, Americans are packing up and escaping places with out of control taxation.

Growth is stronger where taxes are lower. Texas’ population grew 21 percent in just the past decade from 21 million to 25 million. While this is partially due to the inflow of immigrants, it has also attracted Americans from all other 49 states.According to Texas Governor Rick Perry “Texas has no personal income tax and no interest in getting one.” Due to Texas’ low taxes and business friendly environment, they have gained four additional House seats.

Nine states currently have no income tax. This is a large selling point that has attracted a great deal of entrepreneurs and productive citizens to these states. The no income tax states of Florida, Washington and Nevada gained a total of four seats. According to the Washington Examiner,

Seven of the nine states that do not levy an income tax grew faster than the national average. The other two, South Dakota and New Hampshire, had the fastest growth in their regions, the Midwest and New England. Altogether, 35 percent of the nation’s total population growth occurred in these nine non-taxing states, which accounted for just 19 percent of total population at the beginning of the decade.

Who were the Census losers? For the first time in history, California did not gain a single seat. Massachusetts or “Taxachusetts” lost a seat to other states with lower taxes. Under the new Census data, New York lost two House seats. Over the past decade, the state has had one of the highest tax burdens in the nation. The Tax Foundation has ranked it the worst state for businesses in 2011. Even Donald Trump has threatened to move out of New York due to excessive taxation.

New York City Mayor Michael Bloomberg weighed in on the Census results bysaying:

Unless we make this an attractive state to do business in and to live in, people are going to continue to move out. We have to reverse that trend. If you take a look at the competition, we have a lot of retired firefighters, police officers and teachers, for example, that move to Florida. Why? I don’t think it’s the better weather. It’s there’s no inheritance tax and there’s no estate tax. There’s no income tax.

Bloomberg should listen to his own advice by dropping his proposal for a soda tax in New York City.

The Census results should be a good wake up call to state governments. It’s common sense that states with low taxes will attract more people. States with no income taxes have far more job growth and economic gains than those with income taxes—especially those with high income taxes. According to the American Legislative Exchange Council, the nine states without income taxes have had an average job growth of 18.2 percent over the past decade. On the other hand, the nine states with the highest income tax experienced a mere 8.4 percent rise in jobs.

The latest Census data only confirms what we have always known. Americans are sending a message by voting with their feet. More of us are choosing low taxes, less government and more freedom.

 

Tax Deal Passes—But Taxes Still Too High

Congratulations! With the Obama tax deal passing both the House and Senate, we have prevented the largest tax hike in American history. On New Year’s Day, we will not be forced to surrender more money in the form of income taxes to the federal government. As we have already noted, the tax deal was full of notable flaws and did not go far enough. We still pay way too much in taxes.

This tax deal brings more economic certainty. But temporarily keeping tax rates the same will not significantly boost the economy. We need a bold solution. It’s clear that the Founding Fathers would have vehemently opposed an income tax—let alone the current top rate of 35 percent. As Thomas Jefferson said “a wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor and bread it has earned.”

As we saw throughout the entire tax deal debate, we still face a fierce opposition. We will continue to push for permanent fundamental tax reform that replaces the current system with one that is far simpler, fairer, and flatter. This includes an overhaul of the entire tax code and major spending reductions.

These tax cuts will not cost taxpayers a dime. Recently, some lawmakers have espoused the flawed rhetoric that extending all of the 2001 and 2003 tax cuts would cost $855 billion. In response to the tax deal, Peter Welch (D-VT) and colleagues write that “digging the country deeper into debt to pay for misguided tax policy is irresponsible and simply doesn’t make sense.” However, we do not need to “pay” to tax cuts.

As Ron Paul legislative director Norman Singleton notes, “to say cutting taxes or not allowing taxes to raise ‘cost government money’ or increases the deficit is like saying when I stop my pocket from being picked I am costing the mugger money.” The question arises: who owns the money that you have earned? The government or yourself? To say that tax cuts cost the government money implies that all your income belongs to government in the first place.

Tax cuts allow individuals to keep more of their paycheck. It is not a “millionaire giveaway” or “millionaire welfare” as some have suggested. The government is not handing out any money to any person. This just means that individuals will choose how to spend more of their money instead of Washington bureaucrats. More of our money will go directly towards things we personally value. That can only be a good thing.

The popular assertion that tax cuts—or keeping the tax rates the same—will increase the deficit is false. In fact, top earners actually paid a higher share of taxes under the 2001 and 2003 tax cuts. These tax cuts lowered income tax rates across the board, expanding the economy by giving all individuals more incentive to create wealth by letting them keep more of every dollar they earned.  According to the Tax Foundation, top 1 percent of earners paid 37.42 percent of federal income tax in 2000. By 2007, their tax share had increased to 40.41 percent. On the other hand, Americans in the bottom 50 percent of filers paid a smaller share of taxes between 2001 and 2008. The recession has played a major role in reducing the share of taxes collected in recent years. The Tax Foundation found that “each year from 2005 to 2007, the top 1 percent’s constantly growing share of income earned and taxes paid set a record.”

This tax deal puts us in a better position to achieve the goals of fundamental tax reform. We still have a lot of work to do. It is still outrageous that the average American who makes roughly $37,000 annually has to surrender 25 percent of their income to the federal government. From rich to poor, we all deserve to keep more of what we earn.

Washington’s Proposed Income Tax Will Stifle Economic Growth

Originally posted at FreedomWorks.org.

Washington State is often listed as one of the best places to live, retire and open a business. Home to some of the fastest-growing industries in the nation, Washington was ranked by Forbes as the second best state for businesses in 2009. Furthermore, Washington was recently featured on U.S News and Reports’ list of the five best states to build a nest egg. But all that could change soon.

Washington’s absence of an income tax is a large selling point that has attracted a great deal of entrepreneurs and productive citizens to the state. Many of these successful residents have migrated from states with high income tax burdens. However, there is a statewide proposition, Initiative 1098, on the November ballot that would impose a 5 percent income tax on individuals earning over $200,000 or $400,000 for married couples. Any individual making over $500,000 or couple earning $1,000,000 will be forced to pay an additional four percent surcharge.

If passed, Washington would suddenly go from having no income tax to imposing the eighth highest rate in the country. After two years, the law would allow the legislature to extend the income tax to nearly all residents. Keep in mind that the federal income tax once only applied to the rich. Today, the federal income tax is levied on Americans of all incomes. As we’ve seen from other states that have adopted income taxes in the past few decades, these tax hikes will crumble the economy.

In fact, states with no income taxes have far more job growth and economic gains than those with income taxes—especially those with high income tax rates. According to the American Legislative Exchange Council, the nine states without income taxes had an average job growth of 18.2 percent over the past decade. Conversely, the nine states that have a high income tax rate experienced a mere 8.4 percent rise in jobs. Income taxes discourage work and investment while infringing on individual liberty.

In various ways, the wealthy residents are the most responsive to shifting tax rates. Unlike the rest of us, the rich are likely to own more than one house. If Washington introduces a steep income tax, many wealthy residents will simply pack up and leave or at least file taxes in a different state. That’s exactly what happened in Maryland. Governor Martin O’Malley raised income tax levels on wealthy households to 6.25 percent from 4.75 percent in 2008. In the end, Maryland’s millionaire income tax back fired. It is estimated that Maryland lost $1 billion because one-third of its wealthy residents moved or filed their taxes in other states with lower tax burdens.

Washington should learn from other states’ mistakes. Simply, soak-the-rich policies have never worked in anyone’s favor. Washington’s proposed income tax will also encourage job-creating businesses to go elsewhere to escape high taxes. As an unintended consequence, all of the 11 states that have introduced income taxes within the past 50 years have seen their share of U.S output decline.

Unfortunately, a few prominent billionaires are supportive of tax hikes on the rich. Notably, wealthy lawyer Bill Gates Sr. states that “rich people aren’t paying enough.”  He has personally contributed $500,000 to promote Initiative 1098 to force citizens in Washington to surrender more of their hard-earned money to their government.

Bill Gates Sr. should live and lead by example. As economist Mark Skousen said “the triumph of persuasion over force is the sign of a civilized society.” If Bill Gates Sr. strongly believes that the rich do not pay enough in taxes, he should cut a check to the Washington State Government and peacefully encourage others to do the same. However, he has chosen to use the power of the government to coerce others to pay more money against their will.

If passed, the new income tax may deter Americans from investing in Washington. Punishing the rich through higher taxes will ultimately hurt everyone in the state. If you want less of something, you tax it. Why would Washingtonians want less income? By forcing productive citizens to turn over nine percent of their investments to the state government, countless jobs will be destroyed or never created.

Instead, state residents should be free to spend or donate their hard-earned money in anyway that they desire. After all, individuals in the private sector spend their money in a more efficient manner than government bureaucrats. Washingtonians who want more jobs and economic growth will vote against Initiative 1098 to preserve the state’s competitive income tax rate of zero.

Democrats Propose Harmful Corporate Tax Increases

This week, Democrats are pushing a bill that would increase taxes on the profits of American companies with foreign subsidiaries. President Obama states that:

For years, our tax code has actually given billions of dollars in tax breaks that encourage companies to create jobs and profits in other countries. I want to change that.

Supporters claim that the corporate tax hike will protect American jobs by supposedly encouraging businesses to stay in the United States. However, Obama’s counterproductive plan will likely drive more businesses out of the US while taking even more money out of the American economy. Microsoft CEO Steve Ballmer has already declared that “if the President’s plan is enacted, Microsoft would move facilities and jobs out of the U.S.”

The United States already has one of the highest corporate tax rates in the world. As shown in the Project America chart below, Japan is the only developed nation with a higher corporate tax:

America is one of the few countries in the world that taxes global profits of domestic companies. Under current tax law, US companies must pay some corporate taxes in both the United States and their host country. After paying the corporate tax of their host country, US companies must pay the difference between the US corporate tax rate and the foreign rate once they bring profits back to the US.

President Obama’s plan would end the deferral of foreign income by forcing companies to immediately pay US corporate taxes on any profits earned.According to the Wall Street Journal:

We’re all for increasing jobs in the U.S., but the President’s plan reveals how out of touch Democrats are with the real world of tax competition. The U.S. already has one of the most punitive corporate tax regimes in the world and this tax increase would make that competitive disadvantage much worse, accelerating the very outsourcing of jobs that Mr. Obama says he wants to reverse.

The Obama administration should focus on the reason why businesses are moving operations overseas in the first place. If the goal is to increase businesses inside the United States, the best way is to encourage companies to stay is to decrease the exorbitant corporate tax rate. Even Obama’s economic advisor Paul Volcker found in a recent report that:

The growing gap between the U.S. corporate tax rate and the corporate tax rates of most other countries generates incentives for U.S. corporations to shift their income and operations to foreign locations with lower corporate tax rates to avoid U.S. rates.

As long as the US corporate tax rate is 80 percent higher than the OECD average, there is a great incentive for companies to move to a country with a lower tax burden. At a certain point, it becomes sensible for businesses to be more cost efficient by escaping the punitive US corporate tax.

Despite the high US corporate tax rate, the revenue Washington collects is lower than most relative to the size of the economy. As the chart below shows, the United States raises less revenue from corporate taxes than most countries with lower tax rates.

For instance, foreign companies have massively invested in Ireland which has a low corporate tax of 12.5 percent. As a result, Ireland collects more corporate tax revenue as percentage of GDP than the United States whose corporate tax is 180 percent higher.

As a U.S Treasury report reveals, employees and consumers are the ones who bear the cost of corporate taxes. A Heritage Foundation study finds that the high US corporate tax rate severely hurts employment. According to their study, the full repeal of corporate taxes would likely generate 2 million jobs and $280 billion more in real gross domestic product.

Lowering the corporate taxes would encourage multi-national companies to flow into America. Instead, the proposed plan to increase the corporate tax would further destroy jobs while hurting America’s global competitiveness. In order to boost job growth and global competitiveness, Congress must strive to lower the corporate tax rate to a more sensible level.

Tax Hikes on the Rich Won’t Work

Originally posted at FreedomWorks.org.

House Speaker Nancy Pelosi (D-CA) and Senate Majority Leader Harry Reid (D-NV) have made it clear that they will strive to raise taxes on all families making over $250,000 annually on January 1st. According to Nancy Pelosi, “I see no justification for giving a tax break…for the wealthiest people in America…the tax cuts at the high end have increased the deficit enormously.”

To the contrary, the key culprit behind rising federal deficits is runaway government spending that has plagued Washington. The current federal $1.4 trillion budget deficit was not created because government taxed too little. As a result of the Bush-era tax cuts which lowered tax rates for all Americans, total tax revenue increased by 40 percent within four years. Between 2002 and 2004, tax payments by individuals who made more than $200,000 increased by 19.4 percent—more than double those taxpayers in lower brackets.

In the current tax debate, we cannot ignore human action and motivation. President Obama claims that raising tax rates for wealthy Americans will increase tax revenue by $700 billion. Obama’s prediction is improbable since the rich tend to be highly responsive to changes in their tax burdens.

While the vast majority of Americans make less than $250,000 annually, raising taxes on the wealthy will have disastrous effects on the entire economy. Ultimately, hiking taxes for the rich will likely worsen the deficit while destroying countless jobs. As history has repeatedly proven, higher tax rates produces lower tax revenue.

Simply, soak-the-rich policies have never worked in anyone’s favor. For instance, Maryland Governor Martin O’Malley raised income tax levels on wealthy households to 6.25 percent from 4.75 percent in 2008. Lawmakers in Annapolis wrongly predicted that this millionaire tax would generate $106 million. According to the Wall Street Journal,

Well, the state comptroller’s office now has final tax return data for 2008, the first year that the higher tax rates applied. The number of millionaire tax returns fell sharply to 5,529 from 7,898 in 2007, a 30% tumble. The taxes paid by rich filers fell by 22%, and instead of their payments increasing by $106 million, they fell by some $257 million.

Certainly,  Maryland’s millionaire tax back fired. It is estimated that Maryland lost $1 billion because one-third of wealthy residents moved or filed their taxes in other states with lower tax burdens. Since Maryland’s millionaire tax was implemented, Maryland’s deficit has increased from $1.7 billion to $2 billion.

Similarly, New York enacted a “millionaire tax” that raised tax rates on all residents making more than $200,000 a year. However, since New York implemented their so-called millionaire tax its state revenue has declined by 9 percent. According to New York Governor David Paterson,

We increased the income tax for millionaires last year. We projected that we would get $4 billion and we actually got well short of it. Tax the rich, tax the rich. We’ve done that. We’ve probably lost jobs and driven people out of the state.

Raising federal taxes on the rich will also have similar unintended consequences—successful US companies will be more inclined to move to a country with a lower tax burden. The rich are better able to change the location, compensation or timing of their income in response to changing government tax policies. Wealthy Americans can generally afford to hire expensive lawyers or accountants to avoid paying numerous taxes. While the capital gains tax is expected to rise by 33 percent, billionaire Bill Gates and Warren Buffett hold most of their wealth in the form of nontaxed and unrealized capital gains. In various ways, the rich are the most responsive to shifting tax rates.

Under the Obama administration’s plan, the federal top two income tax brackets will rise to 36 and 39.6 percent. As President Obama once said, “I do think at a certain point you’ve made enough money.” If the federal government confiscates nearly 40 cents out of every dollar made, businesses are discouraged from expanding their operation and would be entrepreneurs are deterred from starting new enterprises.

Instead, Congress must lower taxes for all Americans across the board to lower the deficit and boost job creation.  President Kennedy favored “an across-the-board, top-to-bottom cut in personal in corporate income taxes.”  In the eight years that Kennedy’s tax cuts were in effect, tax revenue actually doubled. Hiking taxes on the rich is simply a lose-lose situation by stifling economic growth while increasing the budget deficit.

Obama v. Kennedy on Tax Hikes

Originally posted on FreedomWorks.org.

During President Obama’s speech in Cleveland, he indicated that he still wants to raise taxes on small businesses making over $250,000 a year on January 1st. He criticized House Minority Leader John Boehner for wanting to  extend Bush-era  tax cuts to the “rich” claiming that these were “not new ideas.” He stated: 

Make no mistake: he and his party believe we should also give a permanent tax cut to the wealthiest two percent of Americans. With all the other budgetary pressures we have – with all the Republicans’ talk about wanting to shrink the deficit – they would have us borrow $700 billion over the next ten years to give a tax cut of about $100,000 to folks who are already millionaires.

It is true that tax cuts are not a new idea. In 1964, Democratic President Kennedy’s tax cuts represented 8.8 percent of the budget—far greater than even the Bush or Reagan tax cuts. While the federal government faced a budget deficit, Kennedy favored “an across-the-board, top-to-bottom cut in personal in corporate income taxes.” Kennedy’s tax cuts reduced the top income tax bracket from 91 percent to 70 percent. In the eight years that Kennedy’s tax cuts were in effect, tax revenue actually doubled. In fact, every time that a President has dramatically lowered taxes, tax revenue has increased. According to Kennedy,  

 It is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.

On January 1, 2011, the top income tax bracket will rise from 35 percent to 39.6 percent. If history is any indication, these high taxes will discourage production and lead to a decrease in tax revenue. In the end, the “rich” will end up paying fewer taxes due to Obama’s proposed tax hikes.

Tax cuts are a proven method of decreasing the deficit and expanding job growth. As the video below shows, Obama should take a lesson from one of his Democratic predecessors:

PHILADELPHIA’S GOVERNMENT IMPOSES RESTRICTIONS AND FEES ON BLOGS

Originally posted on August 24, 2010 on FreedomWorks’ website.

Like many cities across the nation, Philadelphia faces a budget crisis due to massive overspending by lawmakers on wasteful projects. In order to make up for their $179 million shortfall, Philadelphia’s government has proposed everything from steep soda taxes to property tax increases. Unfortunately, the city has taken it even one step further by requiring that Philadelphia’s bloggers obtain a $300 business license and pay a “business privileged tax.”

In Philadelphia, most people maintain blogs as a hobby to express their opinions on various issues from politics to local restaurants. With very few exceptions, the required “business privileged tax” exceeds bloggers’ incomes. Marilyn Bess, a local Philadelphian blogger, has made about $50 over the past three years on her green living blog. According to the MS Philly Organic blog owner,

The real kick in the pants is that I don’t even have a full-time job, so for the city to tell me to pony up $300 for a business privilege license, pay wage tax, business privilege tax, net profits tax on a handful of money is outrageous.

A number of people who own small, low-traffic blogs that make no money are receiving letters from the city treasurer claiming that they owe $300 to the government. Any blogger who fails to comply with this imposed hefty tax may face harsh legal consequences.

Since Philadelphia’s government has become no stranger to corruption and waste, blogs have given ordinary citizens the opportunity to speak out against their elected officials. Forcing blog owners to pay more in taxes than they earn would likely shut down grassroots blogs that help hold politicians accountable to citizens. All Philadelphia residents have the right to post their thoughts on the Internet without obtaining a costly government license to do so. Please see Philadelphia’s city council websiteto contact district council members regarding these unprecedented new taxes. Unless we take action to fight these outrageous restrictions on Philadelphia’s blogs, a new bloggers tax may be imposed on a city near you!

CAPITOL COMMENT: 2011 TAX HIKES

Originally posted on August 24, 2010 on FreedomWorks’ website.

To download a PDF of this article, please click here.

Unless Congress takes action, the largest tax hike in American history will occur on January 1, 2011. The series of tax cuts passed in 2001 and 2003 lowered taxes for almost all taxpayers. While the Obama administration claims to be focused on job growth, such a dramatic tax hike will result in higher unemployment.

List of the major tax increases coming in 2011:

Increased Income Tax Rates
•   Currently, all income tax rates are set to increase on January 1, 2011. If passed, President Obama’s 2011 budget would increase the personal income tax rates for the top two tax brackets. As a result, two-thirds of small businesses would be taxed at a rate of 39.6 percent. (1).

Return of the Death Tax—At 55 Percent
•    The Bush-era tax cuts eliminated the death tax entirely in 2010. However, the death tax is scheduled to come back in 2011. All individuals who have personal assets valued at more than $1 million will be taxed at a rate of 55 percent upon his or her death. The return of the death tax will likely put small businesses and family farms out of business that cannot afford to pay for this immoral form of double taxation. (2).

Increased Capital Gains Taxes—To 20 Percent
•     The capital gains tax will rise from 15 to 20 percent. The increased capital gains tax will deter small businesses from creating new jobs. In addition, the capital gains tax discourages investment and punishes Americans who save money for the future.  (3).

Increased Dividends Tax –To 39.6 Percent
•    The dividend tax will rise from 15 to 39.6 percent in 2011. The dividend tax is a form of double taxation since a company has already paid corporate taxes on their profits. As a result, investors are harmed in the process. (4). The dividend tax discourages investment in business which is essential to job growth.

Increased Energy Taxes
•    Various tax cuts will be repealed for companies that produce energy. Since these new taxes will be passed on to consumers in the form of higher prices, expect your energy costs to skyrocket. (5).

Increased Health Care Taxes
•    “The Medicine Cabinet Tax”: Individuals will no longer be able to use pre-taxed dollars in their flexible spending accounts or health savings accounts to purchase over the counter medicines available without a doctor’s prescription.

•    “Brand Name Drug Tax”: ObamaCare will impose a hefty tax on name-brand drug manufacturers. This tax will be passed onto all consumers in the form of higher medicine prices. (6).

On January 1, 2011, the largest tax hike in history will occur. The list above includes only a few of the many tax increases that are expected. The increased taxes on small businesses, family farms, investors, parents and consumers will destroy job creation. During these hard economic times, Congress should be focusing on reducing the tax burden for all Americans in order to restore prosperity and boost job growth. Instead, the scheduled 2011 tax hikes will stifle economic growth while creating widespread uncertainty for small businesses and taxpayers.
1. Ellis, Ryan. “Six Months to Go Until The Largest Tax Hikes in History.” Americans for Tax Reform. 7 July 2010. <http://atr.org/six-months-untilbr-largest-tax-hikes-a5171&gt;

2.  Dubay, Curtis. “Obama’s 2011 Budget Tax Hikes Contradict Focus on Job Creation.” Heritage Foundation. 3 Feb 2010. <http://www.heritage.org/Research/Reports/2010/02/Obamas-2011-Budget-Tax-Hikes-Contradict-Focus-on-Job-Creation&gt;

3.  Laffer, Arthur. “Tax Hikes and the 2011 Economic Collapse.” Wall Street Journal. 6 June 2010. <http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748704113504575264513748386610.html&gt;

4. Ibid.

5.  Supra.

6. Supra.

BUSH-ERA TAX CUTS REDUCE DEFICIT AND INCREASE EMPLOYMENT

Originally posted on August 2, 2010 on FreedomWorks’ website.

In 2001 and 2003, Congress passed a series of tax cuts that lowered income tax rates for all Americans. These Bush-era tax cuts expanded the economy by giving all individuals more incentives to create wealth. Unless Congress acts now, all of these tax cuts will expire on January 1, 2011. Unfortunately, Speaker of the House Nancy Pelosi (D-Cali) wrongly claims that these Bush-era tax cuts have not had a positive effect on the economy,

The tax cuts for the wealthiest … (with income of) $250,000 and above, were the Bush initiative. I don’t see any reason why we should renew a tax cut that only gives a tax cut to the wealthiest people in America, increases the deficit, and doesn’t create jobs. That doesn’t make any sense.

On the contrary, failing to extend the Bush-era tax cuts will actually increase the deficit and the unemployment rate. Nancy Pelosi fails to acknowledge that if all of the Bush-era tax cuts are allowed to expire, marginal tax rates will increase for every working American. The Obama administration has proposed a plan that extends the tax cuts only to families making less than $250,000. Under this proposal, here is how the top two income tax bracket will rise:

- The 33% bracket rises to 36%
- The 35% bracket rise to 39.6%

Treasury Secretary Timothy Geithner asserted that allowing tax cuts to expire for highest earning Americans would “make some progress bringing down our long-term deficits.” Lawmakers hope to raise taxes on wealthy Americans in order to cover up the budget shortfall that was created by runaway government spending. However, this simply will not work. In fact, economists have found that increasing marginal tax rates actually lowers tax revenue. According to the Heritage Foundation,

President Hoover dramatically increased tax rates in the 1930s and President Roosevelt compounded the damage by pushing marginal tax rates to more than 90 percent. Recognizing that high tax rates were hindering the economy, President Kennedy proposed across-the-board tax rate reductions that reduced the top tax rate from more than 90 percent down to 70 percent. What happened? Tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent (33 percent after adjusting for inflation).

It is a false presumption that “soaking the rich” by increasing taxes will raise tax revenues. The Obama administration’s plan to increase marginal taxes for the rich to bring down the deficit fails to factor in human motivation and action. As taught in economics 101, incentives matter. Under Obama’s plan, two-thirds of businesses profits will be taxed at a higher rate of 39.6 percent. As a result, individuals are more deterred from starting new enterprises. Employers will be forced to pay more in taxes and will have less to invest in expanding their business by creating new jobs. In the end, these higher taxes will discourage production. Why take an enormous risk with your capital if the government takes away nearly 40 percent of your potential profit?

In the Wall Street Journal, Arthur Laffer explains the secondary consequences of increased marginal rates,

Not only do the direct income tax consequences of higher tax rates on those in the highest brackets lead to higher deficits, the indirect effects magnify the tax revenue losses many fold. As a result of higher tax rates on those people in the highest tax brackets, there will be less employment, output, sales, profits and capital gains—all leading to lower payrolls and lower total tax receipts. There will also be higher unemployment, poverty and lower incomes, all of which require more government spending.

In reality, higher tax rates will alters incentives which lead to larger deficits. If the Obama administration increases marginal tax rates for high income earners, tax revenue will likely decrease. The graph above shows that the Bush-era tax cuts increased production and innovation which led to the rich paying a larger share of taxes. According to the U.S. Department of Treasury, the top 1 percent of income earners will pay 37 percent of tax revenue with the current 35 percent marginal tax rate. Under Obama’s proposal, these individuals will only pay 31 percent of tax revenue with the proposed 39.6 percent marginal tax rate. President John F. Kennedy understood that “reducing taxes is the best way open to us to increase revenues.” If Congress fails to extend the Bush-era tax cuts to high income earners, the nation will suffer by reducing employment and output while increasing the budget deficit.