On December 31st, the 2003 Bush tax cuts expire.
When that happens, these are among the changes you’ll see in the tax structure of the United State:
As you can imagine, this could absolutely wreck whatever economic recovery may be in place by then.
From the WSJ:
The reality is that the increase in the top marginal income tax rate to higher than 41% will hit the most profitable small businesses especially hard. That’s because millions of business owners pay individual rates under Subchapter S of the tax code. Today, this means they pay the same top rate as the Fortune 500: 35%. But if the 2003 tax rates expire, they’ll suddenly pay more than Goldman Sachs.
New data from, of all places, the Democratic-run Joint Committee on Taxation show that in 2011 roughly 750,000 taxpayers with net business income will pay the highest marginal rate of 39.6% or the next highest bracket of 36% (up from 33%). About half of the roughly $1 trillion of total net business income will also be reported on those returns. In a stroke, that will make tens of billions of dollars unavailable to invest or to hire new workers.
So far, the Obama, Pelosi, Reid triumverate have shown no indication that the tax hike is a bad idea.
But a few key Democrats may force their hand.
The revelation that tax increases could hurt the economy has recently been heard from Senators Evan Bayh of Indiana, Ben Nelson of Nebraska, and, most surprising, even from Kent Conrad of North Dakota. On a scale of unlikely events, this is like the Pope coming out against celibacy. As Senate Budget Chairman, Mr. Conrad has rarely seen a tax increase he didn’t like, but this week he averred that “As a general rule, you don’t want to be cutting spending or raising taxes in the midst of a downturn.”
As the WSJ mentions, this isn’t exactly a conversion to the supply-side economics, but we’ll take what we can get.
Ultimately, with enough attention, this tax hike has the potential to be a critical campaign issue.
It’s a massive tax hike that is scheduled to happen unless this Congress and President put a stop to it.
That provides an opportunity for Republican challengers to step up and ask of their opponents, “do you stand with Nancy Pelosi in the belief that pulling billions of dollars from small businesses will help the economic recovery?”
Paint the incumbents into a corner. “Are you for a tax hike or not?”
Make your choice.
UPDATE: Use this tool to determine how the upcoming tax hike will affect you: http://www.mytaxburden.org/