By Howard Rich — No matter what happens between now and January 1 upper-income earners in America — including tens of thousands of small business owners — will be saddled with sizable tax increases in the coming year. No amount of negotiating in advance of the so-called “fiscal cliff” will change that.
Why not? Because U.S. President Barack Obama simply refuses to negotiate — effectively threatening all Americans with tax hikes in an effort to further his radical redistribution of wealth from private sector “makers” to bureaucratic “takers.”
Armed with polling data showing his equivocating rivals in the Republican Party bearing the blame for any fall over the “cliff,” Obama has vowed to reject any proposal that does not include upper-income tax hikes. This means he gets to hold lower- and middle-income earners hostage to his class warfare demands — secure in the knowledge he won’t be held responsible for the fallout.
“The fiscal cliff allows Democrats that rare political opportunity to do something that they want to do — something that is politically unpopular — while letting somebody else pay the political price,” U.S. Rep. Mick Mulvaney (R-S.C.) recently observed.
Of course it’s the actual price of Obama’s recalcitrance that’s far more frightening to consider. Thanks to his refusal to negotiate, individuals making more than $200,000 annually (and families making more than $250,000 annually) will see their tax rates climb from 33 to 36 percent on January 1. Additionally any income above $390,050 will see a rate increase from 35 to 39.6 percent. Combined, these tax hikes will siphon an estimated $1 trillion from the private sector over the coming decade, according to Obama’s Treasury Secretary Tim Geithner.
Absent a change of heart by Obama there’s nothing anyone can do to keep these tax increases from taking effect. The only question now is whether lower brackets will also see an increase.
Of course this $1 trillion tax hike is only part of the equation. Every bit as menacing to the U.S. economy is the onset of Obamacare — which will drain another $1 trillion in taxes from the private sector over the coming decade.
“Welcome to the other cliff,” writes Michael Tanner of The Cato Institute in describing the impact of these Obamacare taxes, which include a 0.9 percent Medicare payroll hike and a 3.8 percent tax increase on investment income — both levied on individuals earning more than $200,000 and families earning more than $250,000.
“At a time when the economy desperately needs more risk-taking and investment, we are about to make it harder for entrepreneurs to put their capital to work,” Tanner notes, adding that “this tax will also fall heavily on many small businesses.”
According to the U.S. Joint Committee on Taxation, nearly 1 million people who report business income on their taxes fall into Obama’s “upper-income” definition. And while those 1 million people represent just 3.5 percent of America’s population — they shoulder 53 percent of its business income tax burden. Also, individuals who report business income on their returns create an estimated 54 percent of America’s jobs, according to a recent Ernst and Young report.
Not only that these business owners are already paying their “fair share” — and then some.
“The U.S. has the most progressive income tax burden of any industrialized nation,” the nonpartisan Tax Foundation recently concluded, noting that the “top ten percent of U.S. taxpayers pay a larger share of the income tax burden than do their counterparts in any other industrialized country, including traditionally ‘high-tax’ countries such as France, Italy and Sweden.”
Assuming these small business owners have anything left to pass onto their heirs when they die, Obama is ready to pounce on that money too. Currently estates valued at $5.1 million or less are exempted from the federal government’s “death tax” — while those above $5.1 million are taxed at 35 percent. Barring a fiscal cliff deal prior to January 1, though, any estate valued at $1 million or more will be taxed at 55 percent.
This increase — which would be applied to money that’s been taxed once (and in some cases twice) already — would drain an additional $532 billion from the economy over the coming decade. It would also create yet another compelling disincentive to wealth creation in our country.
The tax hikes associated with the fiscal cliff and Obamacare represent a brutal one-two punch for small businesses — and will cost our economy at least 200,000 jobs next year according to the Congressional Budget Office. And for what purpose? Obama says his plan will slash deficits, but according to the Senate Budget Committee, 75 percent of the money collected from his fiscal cliff “revenue enhancements” will go toward new spending — not deficit reduction.
Such is the reality — and the cost — of the class war Obama has “won.” The losers? American jobs, innovation and prosperity.
The author is chairman of Americans for Limited Government.