Happy Tax Day—No, Really!
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Tax Day is upon us—and you should enjoy it. Why? As painful as it may be to write this year’s check to Uncle Sam, it could be the smallest check you’ll write for years to come.
That’s because all the tax relief provisions passed in 2001 and 2003 are set to expire December 31, 2012. Without a single vote by Congress or signature by the president, federal taxes could rise by $3.8 trillion over a decade.
Small businesses that pay taxes on their companies’ profits at the individual rate could see their top tax rates jump from 35% to nearly 40%. Many successful individuals and small businesses would also help pay for Obamacare through a Medicare tax hike. Limits on itemized deductions would be reinstated. Capital gains taxes would rise from 15% to 20%. Dividend taxes for some taxpayers would surge from 15% to nearly 40%. Estate taxes would rise from a maximum rate of 35% to 55%, and the exemption threshold would dip from $5 million estates to $1 million. What’s more, the Obama administration’s recent budget proposal would single out several core American industries for higher taxes.
The sum of all those taxes is slower growth, fewer jobs, bigger deficits, and a poorer country. Small businesses will not have the capital they need to invest and expand. And as long as the United States has the highest corporate tax rate in the world, global investors—and even some American companies—will look elsewhere.
None of this has to happen. Congress and the president should act quickly to renew all of the 2001 and 2003 tax cuts and expired or expiring business provisions. Doing this now would boost confidence, ease uncertainty, and reinvigorate our recovery. Next, they should adopt comprehensive tax reform that lowers individual and corporate rates and moves to a territorial tax system.
Finally, our political leaders must be straight with the American people on taxes. Perpetuating myths and playing loose with facts only move us further away from the fundamental tax reform we need. Stop pretending that we can lift one group of Americans up by dragging another down. Stop claiming that the better off are not paying their fair share when, in fact, the top 1% of income earners pay 40% of federal income taxes while the lower 50% of filers don’t pay anything at all.
America has prospered because we have always believed that success should be rewarded, not punished. But if we keep feeding the federal tax beast, and with no significant reforms, its appetite will only grow.