Reversion to the Clinton tax hikes: Time to rethink what our government has become

posted at 9:05 pm on November 14, 2011 by J.E. Dyer

As we read more and more about the US federal government handing out money – borrowed-against-our-future money – to the private enterprises of Obama’s campaign donors, it is heart-warming to remember that the tax code is scheduled to revert on 1 January to what it was under Bill Clinton.

This means that unless the Super Committee comes to an agreement to avert it, you are almost guaranteed to have a larger federal income tax bill next year.

Money-manager-types explain, each time we reach this precipice, that going back to the Clinton tax code means virtually everyone who pays now will pay more.  It also means some who don’t currently pay net federal income tax will have a balance owed in 2012 after exemptions.

It’s not just rate increases for the “rich.”  The 10% bracket goes away, with the lowest rate reverting to 15%; the child tax exemption goes from $1000 per child back to $500; the “marriage penalty” comes back in terms of personal exemptions – and those are just the changes that will be felt by the most people.  Taxes on dividend income will go up as well, and all exemptions will be phased out as income rises (which will hit the small-business proprietors and professionals whose activities with their own money make an outsize contribution to economic growth and prosperity – not to mention dealing a blow to charities).

Bob Jennings at Fox Business ran some numbers for a young couple with two kids and combined income of $100,000.  (H/t: Lonely Conservative.)  Their tax bill would go up by nearly $3600 between 2011 and 2012, or about $300 a month.  And that’s just federal income tax:  they’re also paying property taxes (they have a mortgage), probably state income tax as well, and sales taxes and special excise taxes (e.g., federal gas tax) – plus they’re sending 13% of each of their earned incomes to Social Security and Medicare.

The young couple will certainly feel the loss of $300 a month.  Estimates of tax bill increases suggest that they will be felt down to incomes in the upper $20,000s range, by typical single filers.  (With exemptions, multi-person households have lower tax bills at the same or higher incomes.)  Those most likely to be single filers with incomes in this range are either seniors on fixed incomes, or young people just starting out.  For either demographic, an increased tax bite of even $20-30 a month makes a difference.  That amount can easily equal the total monthly fees assessed on, say, utility bills and banking.  Few people in this income bracket can say they wouldn’t miss the amount.

For a household earning $150,000 a year, the tax bill increase will run to $6,000, $8,000 or more, depending on the household.  People with incomes in this range know that the loss of $500-700 a month will make a significant difference.  Assuming they’ve already cut way back on consumption, they’ll have to start cutting back on savings and investment.  That will do the opposite of create jobs and encourage economic growth.  (It will also minimize the additional revenues from increasing the tax rate on dividends.)

The higher you go in the income brackets, the more likely filers will be to simply take less individual income.  Why expose it to the tax man?  The discretion wealthier taxpayers have over their assets disappears, disproportionately with each increase in current income.  It’s not worth it on the margin to accept the greater tax exposure.

These filers will park a greater portion of their assets in low-tax-exposure instruments rather than taking as much current income or capital gains as they do today, and taking economically-productive risks with it.  This removes some amount of ready capital from circulation, leaving it latent:  too expensive to take out and use.  If there were not relatively tax-advantaged options for using it abroad, this might make less of a difference.  But there are.  For America, increasing tax rates on our capital sump will drive jobs and economic growth elsewhere (especially with the costs of regulation on a dramatic upswing in the US).

We can hope the tax increase won’t happen.  The threat was averted for 2011, after all.  But it ought to be especially galling for taxpayers, in the wake of the Solyndra revelations – and the now seemingly endless parade of crony beneficiaries of the Obama administration – to contemplate the very real pain it will inflict on their recession-shocked households if the Clinton tax code comes back.

Americans are not undertaxed.  Government at every level is, rather, overspent – and the people’s lives and commercial activities are stupendously overregulated, which discourages economic activity – as well as income mobility – by raising the cost of literally everything.

Before we collect one additional penny in taxes from anyone, we need to cut spending and regulation.  Start with the federal grants to Obama’s political cronies; the current prohibitions on drilling for oil and gas; and 100% of the discretionary activities of the Environmental Protection Agency, including the new air quality standards set to go into effect on 1 January.  Whether you want to add a new regulation or modify an old one, you should have to fight in Congress for every single change, using your own money, not the people’s – and lose your battles if  you can’t get the votes.

The basis of government has gone badly awry in America.  The bottom line is that the taxpayers should not have to accept pain so that we can fork over more to keep funding it on its current basis.  Michael Bloomberg is wrong about thatGovernment is what has gone wrong, and it’s government that needs to change.

J.E. Dyer’s articles have appeared at The Green Room, Commentary’s “contentions,Patheos, The Weekly Standard online, and her own blog, The Optimistic Conservative.

This post was promoted from GreenRoom to HotAir.com.
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Comments

Very good Blog Post J E Dyer..:)

PS..Go Sooners..:)

Dire Straits on November 14, 2011 at 9:11 PM

Isn’t Clinton on record saying he thinks those rates are too high, too?

I believe so… :)

golfmann on November 14, 2011 at 9:13 PM

Which Clinton? The Clenis or Cankles?

carbon_footprint on November 14, 2011 at 9:17 PM

carbon_footprint on November 14, 2011 at 9:17 PM

LOL!..:)

Dire Straits on November 14, 2011 at 9:20 PM

Only if they pare the government back to where it was under Billy Boy… and then, since every Leftists likes to point to a surplus during his years, we can obviously do without the higher taxes…

hmmm…

Stop the spending.

What a novel concept!

ajacksonian on November 14, 2011 at 9:20 PM

I think going back to the Clinton tax rates would be fine….as long as we went back to the Clinton spending levels. You will never hear a liberal agree to this.

txmomof6 on November 14, 2011 at 9:31 PM

This means that unless the Super Committee comes to an agreement to avert it, you are almost guaranteed to have a larger federal income tax bill next year.
. . .

We can hope the tax increase won’t happen

You realize it’s going to BE ‘next year’ in about six weeks? Are you saying that people’s federal with holding is going up in about six weeks? Do the people who are going to max out their credit cards for a happy christmas know about this?

My google fu has evaporated. I find nothing in the search results where pundits or news media are reporting that people’s tax rates are going up in six weeks.

Skandia Recluse on November 14, 2011 at 9:38 PM

WTF?

Skandia Recluse on November 14, 2011 at 9:39 PM

Well said.

AH_C on November 14, 2011 at 9:44 PM

I thought the deal reached last year was an extension of the tax cuts for 2 years, ie 2011 and 2012. The tax increases wouldn’t happen until 2013.

angryed on November 14, 2011 at 10:29 PM

actually part of me says let them expire. I’d love to hear the shrieking of people when they found out how good they had it under W.

but barry is too clever for that, he leads from behind. He wants others to blame. Cowardly I say

r keller on November 14, 2011 at 10:29 PM

angryed on November 14, 2011 at 10:29 PM

yeah, i thought that too, it would expire at the end of 2012 so that it will be an issue in the campaign

r keller on November 14, 2011 at 10:31 PM

This means that unless the Super Committee comes to an agreement to avert it, you are almost guaranteed to have a larger federal income tax bill next year.

Roger that. I am in the 10% bracket as a retiree. I will see a 50% tax increase to 15% unless Congress does something.

chemman on November 14, 2011 at 10:47 PM

…it is heart-warming to remember that the tax code is scheduled to revert on 1 January to what it was under Bill Clinton.

This means that unless the Super Committee comes to an agreement to avert it, you are almost guaranteed to have a larger federal income tax bill next year.

Can we get back Bill Clinton’s tech boom and Bill Clinton’s “cruel, heartless, austere” federal spending as well?

HitNRun on November 14, 2011 at 10:48 PM

Grrr, grrr. As readers here and at my blog have pointed out, what I meant to say is that the tax code will revert in 2013 (not 2012, as implied in the original text).

If you’re still confused, please see corrections in bold at the Green Room or The Optimistic Conservative (click on my name).

The sentiments are all the same, of course.

J.E. Dyer on November 14, 2011 at 10:58 PM

I say let it happen. There’s no greater method of building fiscal conservatism than to kick the taxpayers while they are down.

unclesmrgol on November 14, 2011 at 11:06 PM

Holy crap. If this is allowed to happen, we’re f00ked. The economy is already staggering – this will be the coup de grace as take-home pay vanishes, buying withers, and employers move even more jobs elsewhere.

Midas on November 14, 2011 at 11:52 PM

Government is what has gone wrong, and it’s government that needs to change.

Yes, but government will not change. They are firmly entrenched, too in love with the three P’s (power, perks, profit) and have learned how to manipulate the people through lies and distortions to maintain the status quo. They will never leave voluntarily. They must be forced out. We must have term limits. Don’t talk to me about losing “good” politicians to term limits. How many of those have you tripped over lately?

Extrafishy on November 15, 2011 at 6:35 AM

Take many drugs?
The 2010 tax agreement pushed this off to Jan 1, 2013. Unless these sobs in Congress change that, this is still a year off. Why do you think Obama has been wandering around asking for tax hikes that are going to end at the end of this year?

DrEvilDoer on November 15, 2011 at 8:02 AM

I say let it happen. There’s no greater method of building fiscal conservatism than to kick the taxpayers while they are down.

unclesmrgol on November 14, 2011 at 11:06 PM

It will also finsish the economy and I think the socialists want that. They hope they can step in and blather endlessly about unequal income distribution and that people will listen.

Oh wait, didn’t they try that, using their OWS spearhead?

The only thing they will succeed in doing is impoverishing all of us so they can give their friends at companies like Solyndra what they steal.

The socialists on the supercommitte know that whole circus was both a stalling and a campaign tactic for Zero.

dogsoldier on November 15, 2011 at 8:40 AM

Between these tax increases and the large increases coming to support the ObamaCare foulness, our economy is due for a beat-down. We have so much to hold the Democrats responsible for, and Americans better get used to unemployment and living in cardboard boxes.

MTF on November 15, 2011 at 9:00 AM

“I feel your pain.” PBHO (homage to Bill Clinton)

Khun Joe on November 15, 2011 at 12:17 PM