July 13, 2010

July 13, 2010 | Factsheet on Federal Budget

Obama's Tax Plan: Bad for Economic Growth

Updated September 7, 2010

Major Tax Hikes on the Horizon

  • The End Is Near: The 2001 and 2003 tax relief packages expire at the end of 2010. All taxpayers will see a steep tax hike in 2011 unless Congress acts soon.
  • Tax Cuts That Create Jobs: The 2001 and 2003 tax cuts that help small businesses create jobs include lower top marginal income tax rates and lower tax rates on capital gains and dividends. Each of these growth-promoting policies will expire.
  • Small Businesses Hit Hard: Small businesses that employ the most workers would be particularly hard-hit if the top income tax rates go up.
  • Now Is Not the Time: There is never a good time to raise taxes, because higher taxes always slow job creation. But raising taxes now, as the economic recovery remains weak and job creation is non-existent, would be an economic disaster.

President Obama's Tax Plan Eliminates Pro-Growth Policies

Obama’s Plan to Keep Tax Cuts for Some, Raise Taxes for Others

  • Obama’s Plan: President Obama’s plan, if passed this year, would extend the 2001 and 2003 tax relief for taxpayers making less than $250,000 a year and hike taxes on small businesses and families earning more than $250,000.
  • Extended Tax Cuts for Some: Policies that the President wants kept include the 10% tax bracket for low levels of income, the doubling of the Child Tax Credit from $500 to $1,000, marriage penalty reductions, and the 25% and 28% marginal income tax rates.
  • No Job Creation with Select Extensions: While each of these policies lowers taxes, none will encourage job creation, because they do not increase the incentives for individuals and businesses to work, save, invest, or take on new risk.
  • Tax Hikes Won’t Create Jobs Either: Tax hikes on high-income earners will cause the most productive small businesses that provide jobs for the vast majority of workers to cut back on hiring. Higher taxes on high-income earners will also slow investment, which will further inhibit job creation.

Redistributive Policies Hurt the Economy

  • Backwards Plan to Stimulate Growth: The tax relief Obama wants to keep doesn’t create jobs, while the ones he intends to get rid of do.
  • Plan Fails Cost–Benefit Analysis: The tax revenue from pro-growth policies that would help small businesses and create jobs pales in comparison to the revenue from the tax relief policies that spread the wealth around.
  • What to Do: The economy continues to struggle and private businesses are still hesitant to add new workers. The best way Congress can help reverse these ominous trends right now is to make permanent the 2001 and 2003 tax cuts for all taxpayers.

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