“Shhh: The Middle Class Tax Hikes Are Coming”

Most of us are in the middle class: That’s a fact. If taxes are going to go up, taxes on the middle class are going to go up. It’s an inconvenient truth that the current Administration would prefer not to acknowledge.

So Reuters publishes a story earlier this week that states that the middle class will see large tax hikes under President Obama’s budget. (You can find the text of the Reuters story here, via the PowerLine Blog.)

The targeted tax provisions were enacted under the Bush administration’s Economic Growth and Tax Relief Reconciliation Act of 2001. Among other things, the law lowered individual tax rates, slashed taxes on capital gains and dividends, and steadily scaled back the estate tax to zero in 2010.

If the provisions are allowed to expire on December 31, the top-tier personal income tax rate will rise to 39.6 percent from 35 percent. But lower-income families will pay more as well: the 25 percent tax bracket will revert back to 28 percent; the 28 percent bracket will increase to 31 percent; and the 33 percent bracket will increase to 36 percent. The special 10 percent bracket is eliminated.

Middle-class families also will find fewer tax breaks available to them in 2010 if other popular tax provisions are allowed to expire. Among them:

* Taxpayers who itemize will lose the option to deduct state sales-tax payments instead of state and local income taxes;

* The $250 teacher tax credit for classroom supplies;

* The tax deduction for up to $4,000 of college tuition and expenses;

* Individuals who don’t itemize will no longer be able to increase their standard deduction by up to $1,000 for property taxes paid;

* The first $2,400 of unemployment benefits are taxable, in 2009 that amount was tax-free.

As I’ve said before, when a tax cut is eliminated you have an increase in taxes. I’m not going to play semantics. Bluntly, that’s a tax hike. I doubt that middle-America cares what it’s called; there’s less in their pockets.

Arthur Laffer, the renowned economist and inventor of the Laffer Curve (which showed that decreasing tax rates leads to an increase in tax collections), doesn’t like where this Administration is taking the economy. In an interview with Human Affairs, Dr. Laffer made some pointed remarks:

“Obama is a fine, very impressive person. He really is. Unfortunately, everything that he is doing in economics is exactly wrong. He is a crappy president,” Laffer said.

“Whenever a country is in the throes of spending too much and raising taxes, it’s a fiscal catastrophe in the making and this is what is happening now,” he said.

What will the impact of all this be? Dr. Laffer believes the economy might improve remarkably this year; however, such improvement would be a mirage. Companies may move income into 2010 from 2011 because of the likelihood of higher taxes next year. Dr. Laffer believes that 2011 will be a disastrous year for the economy.

In any case, higher taxes are coming. All those of you who think that only the guys behind the trees will be taxed, well, you’ve got about a 0% chance of being right.

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One Response to ““Shhh: The Middle Class Tax Hikes Are Coming””

  1. EricH says:

    “which showed that decreasing tax rates leads to an increase in tax collections”

    Well . . . .it showed they *can* lead to an increase in tax collections. It depends on which side of the (possibly local) maximum you currently are.

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