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Boehner’s Tax Increase to Nowhere

So Boehner plans to introduce a bill on the House floor that increases the top marginal tax rate on those earning more than $1 million per year.  Most likely, Boehner and Obama will ultimately agree on a deal that splits the difference between $400,000 and $500,000.  Many Republicans will shrug their shoulders:  “Who cares about a few rich liberals?”

However, this rationale represents a shortsighted view of our problems with the tax system, the budget, and the role of government.

Obama and the Democrats have engaged in sly marketing to peddle their tax increases.  After spending more than a decade fighting the Bush tax cuts and denying that they lowered the tax burden on everyone, they now co-opted the tax cuts and are demanding that taxes on the rich go up, lest the middle class go over the “fiscal cliff.”  Instead of calling them out for fighting against those very tax cuts for years, Republicans have given into this doomsday notion of avoiding the deceitfully contrived fiscal cliff, and are therefore resigned to raising taxes.

The reality is that the Bush tax cuts primarily benefited the middle class, not the rich.  That’s why Congress will never produce enough revenue from taxing the rich, even without factoring in the damage to the economy from tax increases.  According to the CBO’s monthly budget report, revenues have already increased in just the first two months of FY 2013 as much as they would have yielded the entire year from Boehner’s tax increase.  Yet, the debt actually increased because of new spending, despite the debt ceiling deal.  In that sense, this is a tax hike to nowhere.

Moreover, the broader point that has been overlooked by Boehner and the boys is that it’s not just about the Bush tax rates for the rich.  He has refused to put Obamacare tax hikes on the table – taxes which will ultimately affect everyone.  Beginning next month, there will be a $123 billion tax hike in the form of a 3.8% surtax on investment income for families earning more than 250k, not just over $1 million.  This is on top of a 0.9% increase in the Medicare payroll tax.  Middle class seniors will be hosed with new taxes on Flexible Savings Accounts, the 2.3% excise tax on medical devices, and a cap on deductions for medical expenses.

Ignoring the Obamacare taxes as part of the final deal is outrageous.

Here are some other things to consider:

  • The federal government has incurred a $86.8 trillion long-term liability just for the top three entitlement programs.  An austerity cut to the current system without transformational reform is not real entitlement reform.  The goal of healthcare reform is not to merely cut its costs to the federal budget; it is to alleviate the burden of government-run healthcare on the entire healthcare sector.  Any proposal to tweak the outlays for programs such as Medicare, without fundamentally reforming their anti-free-market structure, will only achieve minor savings, cause pain for those suffering from healthcare inflation, and incur the wrath of the largest voting bloc.
  • After 50 years of the war on poverty, we’ve spent 18 trillion, now up to 1 trillion per year, yet poverty as at an all-time high.  Nothing will change from this deal.
  • There are 2,184 assistance programs.  Which one will be eliminated as a result of this deal?
  • We’ve accrued $5.73 trillion in debt over the past 4 years, as much as from the nation’s founding to 2001.  This deal will consummate that spending binge and increase it, albeit at a slower pace.  We are literally debating a distinction of spending $46.5 trillion over 10 years vs. $45.5 trillion.
  • The tax hikes are immediate; the spending cuts are baseline cuts, tenuous, and not guaranteed in the future.  The guaranteed revenue will not be used for deficit reduction; Obama will spend it on new stimulus.

The sad thing is that this bill represents the right goal post headed into the final week of negotiations.  The final products will be much worse and will probably include a clean debt ceiling increase.

We already know that Republicans will never demand something substantial, such as entitlement reform or Obamacare repeal, something that will fundamentally alter the trajectory.  However, they have always stood firm on taxes.  This vote, which is scheduled for the end of the week, will serve as a jail break vote – one that frees them up to vote for additional tax increases in the future.  Hey, once you vote to increase on those earning more than $1 million, you could knock it down to $500,000 and include caps on deduction for those in the second tax bracket as well.  Sensing this opportunity, Democrats are immediately balking at the proposal, knowing all too well that they can extract even more concessions.

Boehner plans to schedule a vote on two bills; one would raise income, dividends, and capital gains taxes on families earning more than $250,000 and one would raise taxes on those about the $1 million threshold.  We must demand regular order on the floor of the House with the opportunity for members to offer amendments.  Please call your representatives and tell them not to raise taxes for the purpose of feeding the rapacious, unconstitutional growth of government.

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