Rep. Mike Pence (R-IN) goes on the offense over the expiring tax cuts from 2001 and 2003 and the lack of Democratic action to extend them. He blasts the Obama administration for arguing that the American economy could “withstand” tax hikes, and marvels at the idea that anyone would propose tax hikes in the middle of a moribund economy:

Actually, the administration does have a proposal out for the tax issue, although it may not yet be in the form of a bill. The Joint Committee on Taxation has already analyzed it, and it does include some protection for middle-class income earners according to the JCT, emphasis mine:

The proposal provides tax relief to a large percentage of taxpayers, which will provide incentives for these taxpayers to work, to save, and to invest and, thereby, will have a positive effect on the long-term health of the economy. The proposal also results in increased marginal tax rates on upper income taxpayers (as is provided for by the present-law sunset of EGTRRA), which will correspondingly reduce incentives for these taxpayers to work, to save, and to invest. Opponents of this latter aspect of the proposal often note that many small businesses, and a large fraction of small business income, will be adversely impacted by an increase in the top two tax rates. The staff of the Joint Committee on Taxation estimates that in 2011 just under 750,000 taxpayers with net positive business income (three percent of all taxpayers with net positive business income) will have marginal rates of 36 or 39.6 percent under the President’s proposal, and that 50 percent of the approximately $1 trillion of aggregate net positive business income will be reported on returns that have a marginal rate of 36 or 39.6 percent. These figures for net positive business income do not imply that all of the income is from entities that might be considered “small.” For example, in 2005, 12,862 S corporations and 6,658 partnerships had receipts of more than $50 million.

This is the big problem, from a long-term economic perspective. Half of all business income will get subjected to higher taxation — mainly for the purpose of expanded government. Even in good economic times, that would tend to slow an economy; in poor times, it will stop growth entirely. Instead of investing in income-generating activities like business expansion, people will tend to shelter capital instead. Even if the middle class gets left alone, which seems unlikely considering the size of spending increases in this administration, the middle class will get squeezed with higher prices and fewer opportunities in the marketplace.

If we want to stimulate the economy, we need to increase incentives for investment, not disincentives. This proposal goes the wrong direction.

Tags: Barack Obama