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Big Tax Hikes Coming?

Democrats aim to increase top tax rates to near 50 percent.

2:04 PM, Sep 8, 2011 • By STEPHEN F. HAYES
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Barack Obama has said that raising taxes in a struggling economy is “the last thing you want to do,” but for some Democrats on Capitol Hill raising taxes is a top priority. A proposal from Democratic members of the House Ways and Means Committee obtained by THE WEEKLY STANDARD favors raising top marginal income tax rates to nearly 50 percent.

 Morning Jay: Obama Will Have Reelection Troubles With This Economy

Alarms of a double dip recession grow louder by the day. “If history is a guide, the odds that the American economy is falling into a double-dip recession have risen sharply in recent weeks and may even have reached 50 percent,” wrote New York Times economics writer David Leonhardt in Thursday’s paper. Leonhardt writes, “[J]ob growth has slowed to a pace that typically signals the start of a recession. Over the last 50 years, every time that job growth has been as meager as it has been over the last four months, the economy has been headed toward recession, in a recession or in the immediate aftermath of one. From early 2010 through this spring, by contrast, employment was growing fast enough to make the economy look as if it were in a recovery, albeit a modest one.”

Joshua Shapiro, an economist with MFR Inc., told the Times: “The chances that we are in something that is going to feel like a recession are close to 100 percent.”

In an August 2009 interview, Obama acknowledged that tax hikes in a recession are “the last thing you’d want to do,” because doing so “would just suck up—take more demand out of the economy and put business further in a hole.”

And yet that is exactly what some in his party are prescribing for the struggling economy. According to guidelines prepared by Democratic staff on the tax writing committee—the Ways and Means Committee—for Democrats on the so-called supercommittee: “This proposal would bring the top marginal income tax rate on ordinary income to 40.4 percent for years before 2013, and to 48.8 percent in 2013 and afterwards (after taking into account the expiration of the 2001 and 2003 tax cuts and the 3.8 percent additional tax on unearned income).”

A committee spokesman attempted to downplay the proposals in an email to Roll Call. “Staff has prepared for review multiple revenue provisions that may come under consideration for a balanced approach to job creation, tax reform and deficit reduction as well as an analysis of changes to entitlement programs that have been proposed by others during previous negotiations this year.”

That 48.8 percent top marginal rate would be the highest since 1986, when top rates were 50 percent for a brief period as Ronald Reagan lowered them from 70 percent in 1980 to 28 percent in 1988. A top federal rate of nearly 50 percent on income does not, of course, include local and state taxes. And if the Democratic proposal were accepted without changes, those taxpayers would be subject to another new tax—this one, on benefits they receive from “tax expenditures.”

Despite growing concerns about a double dip recession, the White House has spent months calling for a “balanced approach” to addressing the deficit and has embraced proposals that would increase revenues in a number of different ways. Virtually all of the proposals from Democrats include the expiration of the Bush tax rates, which would mean top rates of 39.6 percent, up from the current 35 percent rate. The House Democratic proposal includes that increase, and resurrects a 5.4 percent surcharge on the wealthy that was included in a House Democratic health care proposal.

The White House has defended its call for higher taxes by pointing out that the increases would not come during a recession and would only affect the wealthy. But in his 2009 interview, President Obama said even taxes on the wealthy were unwise in the event of a recession.

When NBC’s Chuck Todd reminded Obama that he had proposed raising taxes on “some of the wealthiest Americans,” the president warned that doing so during a recession would hurt the economy.

“We have not proposed a tax hike for the wealthy that would take effect in the middle of a recession. Even the proposals that have come out of Congress—which by the way were different from the proposals I put forward—still wouldn’t kick in until after the recession was over. So he’s absolutely right, the last thing you want to do is raise taxes in the middle of a recession because that would just suck up – take more demand out of the economy and put business further in a hole.”

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