• First comes the new tax hikes that Mr. Obama proposed on Monday. Capping itemized deductions and exemptions for the rich would take $405 billion from the private economy for 10 years starting in 2013. Taxing carried interest would raise $18 billion, and repealing tax incentives for oil and gas production would get $41 billion.So that is Obama's vision of how to apply Keynesian economics to create jobs - take money out of the economy with a tax increase that will fall on small businesses. As if that wouldn't have an effect on jobs.
• These increases would coincide with the expiration of the tax credits, 100% expensing provisions and payroll tax breaks in Mr. Obama's new jobs program. This would mean a tax hit of $240 billion on small business and workers. That's the downside of temporary tax breaks and other job-creation gimmicks: The incentives quickly vanish, and perhaps so do the jobs.
Then there are the expiring Bush tax rates on those earning more than $200,000.
That would raise the highest individual income tax rate to about 42%, including deduction phaseouts, from 35% today. Congress's Joint Committee on Taxation found in 2009 that $437 billion of business income would be taxed at higher tax rates under the Obama plan. And since some 4.5 million small-business owners file their annual tax returns as subchapter S firms under the individual tax code, this tax increase would often apply to the same people who Mr. Obama is targeting with his new tax credits.President Obama seems to have no understanding of how businessmen must figure out their future income and put aside money for expected expenses. Their logic seems to be that they will so jolt the economy with plans that strongly resemble the failed policies of the earlier stimulus that it won't matter that they're loading all these tax increases on small business owners. Or he just doesn't care since the jolt would hit those taxpayers after the election. He hopes to keep his job so he doesn't care about those who will lose their jobs and businesses in the future. All he cares about is demagoguing on class arguments now in the hopes that he will win reelection; he doesn't seem to care about the actual effects of his policies.
The capital gains and dividend taxes would also rise to an expected 20% rate from 15% today. The 10-year hit to the private economy for all of these expiring Bush rates: about $750 billion.
• Also starting in 2013 are two of ObamaCare's biggest tax increases: an additional 0.9-percentage point levy on top of the 2.9% Medicare tax for those earning more than $200,000, and a new 2.9% surcharge on investment income, including interest income. This will further increase the top tax rate on capital gains and dividends to 23.8%, for a roughly 60% increase in investment taxes in one year.
And raising taxes as Obama wants to do just won't do what needs to be done to create economic growth. Peter Wallison explains how even a grand bargain to raise taxes in crafting a budget wouldn't be able to make much of a dent in our debt. Our debt is much larger than people realize.
According to the Congressional Budget Office, the debt held by the public today is $14.3 trillion. CBO estimates that if current policies are continued the debt will be $8.5 trillion higher in 2021, totaling about $23 trillion. As my AEI colleague Alex Pollock points out, no one is counting the off-budget debt of various government agencies (principally Fannie Mae and Freddie Mac)—another $7.5 trillion. So the real total in 2021 will be over $30 trillion. This is merely the contracted U.S. debt. Without serious reform, CBO estimates that the main entitlements—Social Security, Medicare and Medicaid—will add a cumulative increase in spending of $78 trillion in the 20 years after 2021.Even if we repealed all of the Bush tax cuts for all Americans, we wouldn't be able to make much of a dent in that debt.
If we repeal the Bush tax cuts for those families with incomes over $250,000, we get $700 billion over the next 10 years—not much of a dent in either the deficit or the debt. If we repeal the Bush tax cuts for all Americans—something that Mr. Obama says he opposes—we get an additional $3.5 trillion over the same period. Again, pretty puny in relation to nearly $100 trillion in debt and long-term entitlement obligations. Confiscating all earnings over $250,000 in any year will only yield enough to meet one year's deficit.Our only hope is economic growth and Obama's policies are exactly what will reduce that growth. And he just doesn't seem to understand that.