President Obama is now calling for tax increases on dividends and capital gains, even for middle-class families making less than $250,000 per year. This violates his campaign pledge on taxes, in which he said on Sept.12, 2008: “I can make a firm pledge. Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.” He repeatedly promised “you will not see any of your taxes increase one single dime.” But the president now calls for an “immediate increase in taxes on capital gains and dividends” as part of a deal to address the so-called “fiscal cliff,” in which automatic budget cuts and tax increases will kick in beginning Jan. 1, 2013 (including the end of the Bush tax cuts, such as the 2003 cuts in taxes on dividends and capital gains; and additional new Obamacare taxes on investment income).
Rather than cutting spending, which is now at record levels, President Obama demands “new stimulus spending starting with $50 billion next year,” billions in additional government spending on other programs, a “permanent increase in” America’s national-debt limit,” and “an effective end to congressional control over the size of the national debt.” He wants to cancel the scheduled automatic budget cuts, which would substantially reduce America’s record trillion-dollar deficits. He wants to replace them with much smaller, and perhaps imaginary, “unspecified cuts in nonentitlement programs” to be negotiated in the future after Congress agrees to his demand to increase taxes on thrifty people who have capital gains and dividend income, as well as his demand for an “immediate increase” in the “tax rates of” the “richest Americans.”
Obama previously broke his anti-tax pledge by signing into law new healthcare taxes, such as tax penalties on middle-class people who do not buy government-approved forms of health insurance, taxes on various health plans and health-savings accounts, and taxes on investment income starting in 2013 for those who make more than $200,000 a year to pay for Obamacare (or married people filing separately who make more than $125,000 per year). He also broke this pledge by signing into law an SCHIP excise tax increase to pay for increased federal spending, and by unsuccessfully proposing a huge new energy tax that could cost American households an average of $1,761 per year.
Partly because of Obamacare’s new taxes on investment income, which take effect in 2013, “the tax on dividends will skyrocket from 15 percent to 43.4 percent” for many investors. Capital gains taxes also will rise substantially. America already has higher capital gains taxes and taxes on investment income than most countries, which tax consumption more and investment less than we do. Investors should not bear the brunt of these tax increases, especially since our tax code and means-tested benefits already discourage middle-class people from saving (such as government bailouts for irresponsible borrowers who saved little despite having ample incomes; federally subsidized loans; government downpayment assistance for people who didn’t save their money; and college financial aid programs that exclude people whose families have saved too much money over the years). Investment already has fallen off a cliff in recent months, threatening the economy.
The automatic budget cuts contained in the so-called “fiscal cliff” would be good in the long run, even though they could be painful in the short run. Canada’s economy grew faster after it slashed government spending in the 1990s, and America experienced an “economic boom” after the federal government slashed spending in 1946. Over the long run, the economy would benefit if we cut massive welfare spending that discourages work, counterproductive beggar-thy-neighbor agricultural subsidies, and wasteful, excessive Pentagon spending. Congress should reject President Obama’s demand for costly new stimulus spending, since the spending would harm the economy in the long run, even though it might help him politically by boosting the economy in the short run. The Congressional Budget Office, which tends to overstate the stimulative effect of government spending, nevertheless admits the previous $800 billion stimulus package actually will shrink the size of the American economy in the “long run,” even though it claimed it would help in the “short run.”