President Obama has proposed letting the Bush tax cuts expire next year for individuals and small businesses earning more than $250,000. The non-partisan accounting firm, Ernst and Young has done an assessment of of the expected effects of enacting the president's proposal.
The Ernst and Young study looked at the impact of seeing the top marginal tax rates rise—but also studied the effects of a range of other proposals included in the president's budget and broader tax plans:
This report examines four sets of provisions that would increase the top tax rates:
· The increase in the top two tax rates from 33 to 36 percent and from 35 to 39.6 percent.
· The reinstatement of the limitation on itemized deductions for high-income taxpayers (the "Pease" provision).
· The taxation of dividends as ordinary income and at a top income tax rate of 39.6 percent and increase in the top tax rate applied to capital gains to 20 percent.
· The increase in the 2.9 percent Medicare tax to 3.8 percent for high-income taxpayers and the application of the new 3.8 percent tax on investment income including flow-through business income, interest, dividends and capital gains.
Here is what the accounting firm concluded would happen:
· Output in the long run would fall by 1.3 percent, or $200 billion, in today's economy.
· Employment in the long-run would fall by 0.5 percent, or roughly 710,000 fewer jobs, in today's economy.
· Capital stock and investment in the long run would fall by 1.4 percent and 2.4 percent, respectively.
· Real after-tax wages would fall by 1.8 percent, reflecting a decline in workers' living standards relative to what would have occurred otherwise.
A small price to pay for allowing Obama to say he's forcing the "rich" to pay their "fair share". For him, campaign rhetoric trumps effective policy every time.