What Are Economists Really Saying About Tax Rate Increases?

[Revmitchell]

In fact, two studies released this year predict that raising tax rates on high-income families and small businesses would hurt the economy. The tax rate increase was proposed by President Obama and involves raising the top two marginal tax rates to 39.6 percent and 36 percent, respectively.

The first of the two studies was performed by Ernst and Young, a large consultancy, for a group of clients representing small businesses. They used Ernst and Young’s proprietary macroeconomic model to evaluate the long-run economic cost of the proposed tax increase, along with tax increases on dividends and capital gains.

The second study was performed by the Congressional Budget Office (CBO) and focuses on the short-term impact of the tax increase on high-income taxpayers. The CBO report must be read carefully, since the baseline is current law, in which tax rates will rise across the board.

http://blog.heritage.org/2012/11/13/what-are-economists-really-saying-about-tax-rate-increases/

 

[InTheLight]

The article states that the Ernst and Young study shows 710,000 jobs lost in the next 10 years and the CBO study shows 200,000 jobs lost in the first year after the tax rates are increased.

And what is the conclusion of the article?:

Without modeling all these components together in the same framework, one cannot be certain how to relate them, but the best evidence is that the costs of the tax increase are large compared to its benefits.

<caveman voice> : "Tax increases....BAD!!!!"

If the goal is to reduce the deficit by using the new tax rate revenue, the result would be an additional $85 billion in tax revenues per year. That is roughly a 7.7% reduction in the deficit. That is worthwhile. In contrast, if tax rates weren't raised and those 200,000 jobs were saved (paying $50,000 a year) would keep about $250 million in tax revenues, or about .023% of the 2012 budget deficit.

So if the goal is deficit reduction your choice is to continue to collect .023% of the budget deficit or else collect a fresh amount 7.7% of the budget deficit (every year).

 

[billwald]

Depends upon how one defines "high income." If a person spends 20% of his annual net and his expenses increase to 24% of his annual net can this be described as a great harm to the person? Would he have to reduce his standard of living? I think not!