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On The Way: Job-Killing Tax Hikes
IBDEditorials.com
Fiscal Policy: Timothy Geithner thinks tax hikes will help the economy dig its way out of the hole. Can we really afford two more years of this kind of thinking?
Appearing Sunday on ABC News' "This Week," the secretary of the treasury said he had no problem with letting tax cuts expire for wealthy Americans. "It's responsible to let the tax cuts expire that just go to 2% to 3% of Americans, the highest-earning Americans."
Responsible? Quite the contrary. Indeed, letting taxes rise on the most productive Americans is the most irresponsible thing our government could be doing right now. By dooming us to a permanently lower rate of economic growth, it will kill literally millions of future jobs and trillions of dollars in future GDP.
The top 5% who will be targeted for tax hikes by the Obama administration at year-end are the nation's premier small business creators and entrepreneurs. The tax hike against the "rich" is in fact a tax hike on small businesses. The dirty secret is that small businesses usually don't pay taxes, unlike corporations. The owners do.
Under the current plans of Geithner, President Obama, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid to let portions of the Bush tax hikes expire, the two top tax rates are expected to rise in January to 36% from 33%, and to 39.6% from 35%.
These are not small increases for families earning more than $200,000 a year — the very people who have started or who are most likely to start new businesses. As Americans for Tax Reform has noted, "A majority of small business profits will face a tax rate hike under the Obama-Pelosi-Reid plan."
This is significant because young, small businesses are the economy's biggest job creators. A Kauffman Foundation study conducted last year discovered that firms less than five years old created all the net new jobs in America. Not some of them, all of them.
The new taxes on "families" will poison small business formation and growth. As NewGeography.com executive director Joel Kotkin recently noted, "Family companies represent 60% of the nation's employment and almost 80% of all new jobs."
Small, family-owned businesses will also take hits from the return of the estate tax and the small-business-unfriendly financial "reform" bill that the president just signed. Then there's the government's overhaul of health care, which slaps new fees, taxes and regulations. In short, if you were trying to destroy a vibrant, entrepreneurial economy you couldn't come up with a better plan.
Most galling is this has all been done for reasons of "fiscal responsibility." Democrats have controlled the public purse for four years now. They passed an $862 billion stimulus plan; it didn't work. They passed a $700 billion "Troubled Asset Relief Program." TARP's own special inspector general says it's been a massive failure. Federal support for the nation's financial system has grown 23% to $3.7 trillion in the last year alone. Yet our economy's no better for it.
At some point, doing the same thing and expecting different results becomes a form of mental affliction, not public policy.
In our new slow-growth economy, total U.S. debt will grow from $6 trillion in 2008 to $23 trillion by 2020, estimates show. Deficits will average $1 trillion a year through 2020 at least.
The reason for this is clear: Runaway spending. Thanks to the Democrats, spending as a share of GDP — the most meaningful measure for government's overall control of the economy — has jumped to 25% from its long-term average of 20%. Within a decade or two, it will pass 30%, then 35%. And so on.
Yet, Geithner thinks a tax hike is needed to "make sure we can show the world that we're willing as a country now to start to make some progress bringing down our ... long-term deficits."
We've got news for Mr. Geithner: Europe and the rest of the world want nothing to do with the spending binge that this Congress and administration have undertaken, and which has brought the U.S. to the brink of financial ruin.
Instead, they're cutting their spending and looking for ways to reduce the size of the states. And it may be working, as a Reuters headline suggests: "Europe's Prospects Brighten As U.S. Fades."
Geithner, the president's top economic adviser despite having virtually no
private-sector experience, has presided over one of the worst economies in U.S.
history. Sorry to say, but as long as he remains in office, it's not likely to
get any better.