WSJ on Obama Tax Policy; How Will We Respond?


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by Jared Law on July 18, 2011

This Wall Street Journal opinion piece is very good, and at the same time, it comes from a moderately conservative perspective.

Personally, if you don’t think that today’s tax rates aren’t already high enough to reduce revenues by destroying economic incentive, then I would say that you’re willing to accept far more massive, intrusive, controlling government than I am!

The fact of the matter is that the federal government is far too large already, and if we don’t slash spending by half or more, there’s no question in my mind that we will suffer a catastrophic economic collapse, the likes of which we’ve never seen in world history.

Likewise, our CURRENT tax rates are between double and triple of where they should be, depending upon how much government you’re willing to accept.the optimal tax rate to maximize tax receipts, and a full 25 points higher than necessary for constitutional government.

If the Lord can make due with 10%, so can the Feds.

What’s going on right now is absolutely unsustainable, and we’re very near to the day of reckoning. And Obama, the rest of the Democrats, and ‘progressive’ Republicans are all anxious to spend even more, and to raise taxes.

Isn’t it past time to work toward a government that is smaller than 10% of America’s GDP?

Personally, I think it’s been past time for that since long before I was born. But now that we’re here, it’s up to us, and we can’t afford to wait another day!

The first step, of course, is numbers concentrated in every singe outpost, village, town, city, and state in America. What have you done this week to identify, recruit, and educate additional principled patriots among your peers, or in your neighborhood, or surrounding areas?

If the answer is nothing yet, will you at least begin your identification, recruiting, and/or education efforts, right now? If it’s too late in the day, when you read this, will you at least plan what to do tomorrow, and plan it right now? Please?

Whether it’s to call your peers and to strike up conversations about the economy and the direction of our country, so you can identify those who might be willing to join our movement, or it’s to go door-to-door in your neighborhood with a partner for the same purpose, or you’re willing to start your own local 9.12 project group, or even plan a rally, a service project, an education event (for kids, teens, or adults), or some other event designed to promote freedom, and the restoration of America…

Whatever you’re willing/able to do, if you haven’t yet already, will you begin today, or if necessary, plan for something tomorrow? Please? Isn’t it past time to work toward a government that is smaller than 10% of America’s GDP?

I know you all know how important it is to clean out the White House in November of next year, and many of you aren’t willing to wait, and are pushing to impeach or remove via other means even sooner! That said, regardless of your level of motivation, and your willingness to take things to whichever level suits you, we can all agree that no matter what, we MUST regain the White House ASAP, and shut down the government spending party, right?

Here’s the opinion piece from the Wall Street Jounal:
Get Ready for a 70% Marginal Tax Rate

Some argue the U.S. economy can bear higher pre-Reagan tax rates. But those rates applied to a much smaller fraction of taxpayers than what we’re headed for without spending cuts.

By MICHAEL J. BOSKIN | JULY 18, 2011

President Obama has been using the debt-ceiling debate and bipartisan calls for deficit reduction to demand higher taxes. With unemployment stuck at 9.2% and a vigorous economic “recovery” appearing more and more elusive, his timing couldn’t be worse.

Two problems arise when marginal tax rates are raised. First, as college students learn in Econ 101, higher marginal rates cause real economic harm. The combined marginal rate from all taxes is a vital metric, since it heavily influences incentives in the economy—workers and employers, savers and investors base decisions on after-tax returns. Thus tax rates need to be kept as low as possible, on the broadest possible base, consistent with financing necessary government spending.

Second, as tax rates rise, the tax base shrinks and ultimately, as Art Laffer has long argued, tax rates can become so prohibitive that raising them further reduces revenue—not to mention damaging the economy. That is where U.S. tax rates are headed if we do not control spending soon.

The current top federal rate of 35% is scheduled to rise to 39.6% in 2013 (plus one-to-two points from the phase-out of itemized deductions for singles making above $200,000 and couples earning above $250,000). The payroll tax is 12.4% for Social Security (capped at $106,000), and 2.9% for Medicare (no income cap). While the payroll tax is theoretically split between employers and employees, the employers’ share is ultimately shifted to workers in the form of lower wages.

But there are also state income taxes that need to be kept in mind. They contribute to the burden. The top state personal rate in California, for example, is now about 10.5%. Thus the marginal tax rate paid on wages combining all these taxes is 44.1%. (This is a net figure because state income taxes paid are deducted from federal income.)

So, for a family in high-cost California taxed at the top federal rate, the expiration of the Bush tax cuts in 2013, the 0.9% increase in payroll taxes to fund ObamaCare, and the president’s proposal to eventually uncap Social Security payroll taxes would lift its combined marginal tax rate to a stunning 58.4%.

70MarginalTaxRate.jpgBut wait, things get worse. As Milton Friedman taught decades ago, the true burden on taxpayers today is government spending; government borrowing requires future interest payments out of future taxes. To cover the Congressional Budget Office projection of Mr. Obama’s $841 billion deficit in 2016 requires a 31.7% increase in all income tax rates (and that’s assuming the Social Security income cap is removed). This raises the top rate to 52.2% and brings the total combined marginal tax rate to 68.8%. Government, in short, would take over two-thirds of any incremental earnings.

Many Democrats demand no changes to Social Security and Medicare spending. But these programs are projected to run ever-growing deficits totaling tens of trillions of dollars in coming decades, primarily from rising real benefits per beneficiary. To cover these projected deficits would require continually higher income and payroll taxes for Social Security and Medicare on all taxpayers that would drive the combined marginal tax rate on labor income to more than 70% by 2035 and 80% by 2050. And that’s before accounting for the Laffer effect, likely future interest costs, state deficits and the rising ratio of voters receiving government payments to those paying income taxes.

It would be a huge mistake to imagine that the cumulative, cascading burden of many tax rates on the same income will leave the middle class untouched. Take a teacher in California earning $60,000. A current federal rate of 25%, a 9.5% California rate, and 15.3% payroll tax yield a combined income tax rate of 45%. The income tax increases to cover the CBO’s projected federal deficit in 2016 raises that to 52%. Covering future Social Security and Medicare deficits brings the combined marginal tax rate on that middle-income taxpayer to an astounding 71%. That teacher working a summer job would keep just 29% of her wages. At the margin, virtually everyone would be working primarily for the government, reduced to a minority partner in their own labor.

Nobody—rich, middle-income or poor—can afford to have the economy so burdened. Higher tax rates are the major reason why European per-capita income, according to the Organization for Economic Cooperation and Development, is about 30% lower than in the United States—a permanent difference many times the temporary decline in the recent recession and anemic recovery.

Some argue the U.S. economy can easily bear higher pre-Reagan tax rates. They point to the 1930s-1950s, when top marginal rates were between 79% and 94%, or the Carter-era 1970s, when the top rate was about 70%. But those rates applied to a much smaller fraction of taxpayers and kicked in at much higher income levels relative to today.

There were also greater opportunities for sheltering income from the income tax. The lower marginal tax rates in the 1980s led to the best quarter-century of economic performance in American history. Large increases in tax rates are a recipe for economic stagnation, socioeconomic ossification, and the loss of American global competitiveness and leadership.

There is only one solution to this growth-destroying, confiscatory tax-rate future: Control spending growth, especially of entitlements. Meaningful tax reform—not with higher rates as Mr. Obama proposes, but with lower rates on a broader base of economic activity and people—can be an especially effective complement to spending control. But without increased spending discipline, even the best tax reforms are doomed to be undone.

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