|Largest Tax Hike in History|
|Written by Administrator|
|Thursday, 24 May 2012 09:48|
The nation faces an explosive surge in taxes. The largest tax hike in history—an estimated $494 billion during the first year—looms on the horizon.
Unless Congress takes action, the colossal event will take place on January 1, 2013. Underscoring the severity of the problem, Federal Reserve Chairman Ben Bernanke recently warned that the country is headed toward a “fiscal cliff.”
You may wonder how a massive tax increase of almost half a trillion dollars could occur so suddenly. This consists of several expiring tax reductions and imposition of new levies.
For starters, the Bush tax cuts expire, the child credit is cut in half, and the marriage penalty is restored. In addition, tax rates on capital gains and dividends increase, the payroll tax rate jumps two percentage points, the estate tax climbs, and the Alternative Minimum Tax relief expires. Finally, Obamacare imposes an additional payroll tax on some individuals.
A tax hike of this proportion would be devastating to the nascent economic recovery. Families and businesses would share the suffering. Consumer spending—accounting for over 70 percent of gross domestic product—would be curtailed. Business firms would postpone investment in plant and equipment. Hiring would decline, and the economy could slip into another recession.
Congress must act quickly to address the potential catastrophic effect on the economy. This should be a two-step process. First and foremost, the expiring tax cuts should be extended, and the tax increases set to go into effect need to be eliminated or, at the least, postponed.
The second step is true tax reform. Our Byzantine tax code curtails economic growth and is incomprehensible to the majority of taxpayers.
In short, we need a complete overhaul of the current tax code. Ideally, marginal tax rates should be lowered, and taxes on savings should be eliminated. Moreover, many of the ill-advised deductions, exemptions, and credits that create distortions throughout the economy should be removed.