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Tax Facts: GOP Wildly Exaggerates Size of Looming Tax Hikes

Speaker of the House John BoehnerBy STEPHEN OHLEMACHER

WASHINGTON -- Republicans are calling it "Taxmageddon," the big tax increase awaiting nearly every American family at the end of the year, when a long list of tax cuts are scheduled to expire unless Congress acts.

It would be, GOP leaders in Congress say again and again, "the largest tax increase in American history."

Except it wouldn't be, not when you take into account population growth, rising wages, and most importantly, the size of the U.S. economy. When those factors are taken into account, the largest tax increases were those imposed to help pay for World War II -- back when the U.S. raised additional revenue to pay for wars instead of simply borrowing.

Nevertheless, it is an exaggeration that has proved too tempting for top Republicans in Congress:

• "Any sudden tax hike would hurt our economy, so this fall -- before the election -- the House of Representatives will vote to stop the largest tax increase in American history," House Speaker John Boehner (R-Ohio) said in a May 15 speech in Washington.

• "Before we leave for August, I expect to schedule a vote on legislation preventing the largest tax increase in history," House Majority Leader Eric Cantor (R-Va.) wrote in a recent memo to fellow House Republicans.

• "Millions are unemployed and millions more are underemployed and the country is facing the largest tax hike in history at the end of the year," Senate Republican Leader Mitch McConnell said Thursday in a speech on the Senate floor.

• "This would be, without any exaggeration, the largest tax increase in American history," said a May 17 letter from 41 Republican senators to Senate Majority Leader Harry Reid (D-Nev.).

Republican presidential candidate Mitt Romney gives the claim a different twist, applying it to President Barack Obama's budget proposal for next year. That's an even bigger exaggeration.

THE FACTS: A huge collection of tax cuts are scheduled to expire at the end of the year, affecting families at every income level and businesses of many stripes. Many of the tax cuts were first enacted under former President George W. Bush and extended under Obama.

If Congress does nothing, income tax rates would go up, estate taxes and investment taxes would increase and the alternative minimum tax would hit millions of middle-income people. A temporary payroll tax cut that has been of benefit to nearly every wage earner in 2011 and 2012 would expire, costing the average family an additional $1,000 a year.

In addition, dozens of other tax breaks for businesses and individuals that are routinely renewed each year already expired at the end of 2011. Congress was expected to renew many of them by January, so taxpayers could still claim them on their 2012 tax returns.

If Congress fails to act, businesses would lose a popular tax credit for research and development as well as generous tax breaks for investing in new plants and equipment. Individuals would lose federal tax breaks for paying local sales taxes, buying energy efficient appliances and using mass transit.

In all, federal taxes would increase by about $423 billion next year, according to figures from the nonpartisan Congressional Budget Office and the Joint Committee on Taxation, the official scorekeepers for Congress.

Combined with federal spending cuts scheduled to take effect next year, the one-two punch would probably send the U.S. economy back into recession, according to a recent CBO study.

Still, the tax increases would pale in comparison to those imposed to help finance World War II.

Before the 1940s, the individual income tax applied to only a small percentage of the population. By the end of war, the income tax was levied on most working people, with a top tax rate of 94% on income above $200,000.

By comparison, the current top rate is 35%, on taxable income above $388,350. If Congress does nothing, the top rate would return to 39.6% next year -- the same rate that was in place for most of the 1990s.


In dollars, next year's tax hikes would be the biggest. But the size of the economy is 80 times bigger than it was in the 1940s, which is why economists usually measure taxes and government spending as a share of the U.S. economy.

The 1942 tax increase represented more than 5% of the U.S. economy, as measured by the gross domestic product, or GDP. The 1941 tax increase was 2.2% of GDP, according to a Treasury Department paper published in 2006.

Next year's looming tax increase would represent 2.6% of GDP -- a huge tax hike but not the biggest.

Measured another way, the 1942 tax hike increased federal revenue by a whopping 71%, according to the Treasury Department paper. The 1941 tax hike increased federal revenue by 32%.

By comparison, next year's potential tax hike would increase federal revenues by 16%, according to CBO.

___

ROMNEY: "President Obama has failed to even pass a budget. In February, he put forward a proposal that included the largest tax increase in history, and still left our national debt spiraling out of control, and the House rejected it unanimously," Romney said in an April 4 speech to newspaper executives and editors.

ROMNEY AGAIN: "Rapidly rising federal spending and debt threatens our economic future, and the president has responded by proposing the largest tax increase in history," Romney said in a Feb. 22 release.

THE FACTS: Obama's budget proposal would represent one of the largest tax increases since World War II, if you count letting the payroll tax cut expire as a tax increase. But again, it wouldn't be the largest ever. Obama's 2013 budget proposal mixes tax cuts designed to improve the economy with long-term tax increases aimed at reducing the federal budget deficit.

Obama has proposed extending Bush-era tax cuts for families making less than $250,000 and ending them for families that make more. He would end tax breaks for oil and gas companies but make permanent the research and development tax credit.

In 2013, Obama's budget proposal would increase tax revenue by $195 billion over current policy -- if you include the tax increase from letting the payroll tax cut expire. The tax increase would represent 1.2% of GDP. Or, measured a different way, it would increase tax revenue by 7%.

That would rank as the fourth-largest tax increase since World War II, behind tax hikes enacted in 1950, 1951 and 1968, according to the Treasury Department paper.

Further dousing Romney's claim, House Republicans have passed a budget for next year -- which Romney has embraced -- that would raise just $7 billion less in taxes than Obama's budget in 2013. That's the equivalent of a rounding error, when you're talking about revenues of $2.7 trillion.

___

Online:

Treasury paper on major tax bills since 1940: http://tinyurl.com/65r8f84

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fourskies

What a biased piece of rag reporting! This whole article is an exaggeration. It mentions nothing about the large amount of hidden taxes imposed by obamacare (like 2.3 % on medical equipment and supplies; penalties for not joining obamacare; reduction of pre-tax HSA funds from $5,000 to $2,500; etc, etc.) Yes, the Supreme Court approved it, but only by calling it what it was - a TAX. The article also doesn't mention the 1/2 trillion stolen from Medicare to fund Obamacare - i.e. taxes we payed in the past. And give me a break - the best argument this writer can muster is that WW II taxes were higher? What, we shouldn't have spent every penny we had to prevent world fascism? (Elect BO again, America, and we'll have our own fascist - maybe we should add all the WW II taxes to the pot in that case?) Hack articles like this try to get us to loose track of the basic facts we all know to be true - 1. The govt. doesn't spend or create its own money, it spends ours. 2. The more it gets the more it will spend. 3. The out-of-control deficit has to be reduced. 4. Raising ANY taxes, i.e. giving the govt more money, and reducing the deficit are total opposites. That is the GOP and Romney's message!

August 07 2012 at 11:32 AM Report abuse rate up rate down Reply
fourskies

What a biased piece of rag reporting! This whole article is an exaggeration. It mentions nothing about the large amount of hidden taxes imposed by obamacare (like 2.3 % on medical equipment and supplies; penalties for not joining obamacare; reduction of pre-tax HSA funds from $5,000 to $2,500; etc, etc.) Yes, the Supreme Court approved it, but only by calling it what it was - a TAX. The article also doesn't mention the 1/2 trillion stolen from Medicare to fund Obamacare - i.e. taxes we payed in the past. And give me a break - the best argument this writer can muster is that WW II taxes were higher? What, we shouldn't have spent every penny we had to prevent world fascism? (Elect BO again, America, and we'll have our own fascist - maybe we should add all the WW II taxes to the pot in that case?) Hack articles like this try to get us to loose track of the basic facts we all know to be true - 1. The govt. doesn't spend or create its own money, it spends ours. 2. The more it gets the more it will spend. 3. The out-of-control deficit has to be reduced. 4. Raising ANY taxes, i.e. giving the govt more money, and reducing the deficit are total opposites. That is the GOP and Romney's message!

August 07 2012 at 11:31 AM Report abuse rate up rate down Reply
CLYDE THE FOX

As long as I can have an IT"S_IT once in a while all is A OK__FOXY__

July 09 2012 at 5:56 PM Report abuse rate up rate down Reply
ken herman

Interesting the liberals are arguing that the tax increase is not the largest in history. So what? It's still backbreaking under the present bad economy and large unemployment numbers. The liberal policy is to not address a problem just make it look less bad which, in their minds, solves the problem. The private sector is doing fine, problem solved.

June 12 2012 at 9:13 AM Report abuse rate up rate down Reply
baldinia

Christian fundamentalists take the Bible quite literally. The fact that the Bible often contradicts itself, & that it has, in general, been shown to be a highly dubious document, is irrelevant to these fundamentalists; perhaps their mental condition, or lack of intelligence, allows for these problems to exist in the minds of fundamentalists without causing severe cognitive dissonance.

It is a sad fact that these fundamentalists have taken control of the GOP, & in spite of great strides made by the enlightened founding fathers, are trying to insinuate their religious doctrine into the political sphere. When these points are considered, is it any wonder that lies & deception should be foremost among the GOP's tactics?

June 12 2012 at 8:30 AM Report abuse rate up rate down Reply
bchrist751

This is Pro Obama.... What a waste of time....Yes, Your taxes are going to go up A lot!

June 12 2012 at 8:17 AM Report abuse +1 rate up rate down Reply
art6111

From the article:

"In dollars,next year's tax hikes would be the biggest. But the size of the economy is 80 times bigger than it was in the 1940s, which is why economists usually measure taxes and government spending as a share of the U.S. economy."
"Combined with federal spending cuts scheduled to take effect next year, the one-two punch would probably send the U.S. economy back into recession, according to a recent CBO study."

So this is how: "GOP Wildly Exaggerates Size of Looming Tax Hikes" according to Associated Press

June 12 2012 at 8:10 AM Report abuse rate up rate down Reply
jimstewart65

Probably just an oversight, but Stephen forgot to mention that Obama's budget, his third such budget that received zero votes in Congress would increase our national debt to $26T in just 10 years (according to the CBO). That would result in about $1B per day in interest on the debt. Oh, another "fact"....... the interest we pay China on our debt pays for their military.

June 12 2012 at 7:55 AM Report abuse +2 rate up rate down Reply
1 reply to jimstewart65's comment
kev

The Debt is bad.. But your lies are greater......................................President Obama’s budget would pile up an additional $3.5 trillion in debt over the next 10 years and shows the government’s trust funds running out of money in 2020, Congress’s official non-partisan scorekeeper said Friday.

In 2012 alone Mr. Obama’s budget would leave a $1.3 trillion deficit — $82 billion worse than if none of his policies were enacted. Over the next ten years the deficit would dip to less than a half-trillion dollars in 2017, but would rise again in the later years.

By 2022, a decade from now, the federal government would spend $5.6 trillion and take in $4.9 trillion in revenue — both figures far outstripping today’s levels.
http://www.washingtontimes.com/news/2012/mar/16/cbo-obama-budget-deepens-debt-35-trillion/

June 12 2012 at 8:10 AM Report abuse +1 rate up rate down Reply
DUDE

I think if they could cut the bugdet so that they could buy back debt, people would agree to the higher taxes. Until our government can figure out how to stop waisting billions of $s, I don't want to give them any more of my $s to waist.

June 12 2012 at 2:23 AM Report abuse +2 rate up rate down Reply
1 reply to DUDE's comment
arkady967

Good point. I wouldn't be so prone to regard taxes as such a curse, if I thought the money was being responsibly deployed. At present it looks like the Fed takes taxes to expand that deficit...

June 12 2012 at 4:40 AM Report abuse +2 rate up rate down Reply
Louise

As I have said many many many times...republicans politicians cannot, nor will they ever speak the truth about anything....not about themselves...not about President Obama or any Democrat...not about the big businesses being the enemy of this great Nation..NOTHING!! But as long as they continue to have deaf dumb brainless and blind voters swallowing thier every lie as truth...this great country is doomed. Republicans started it's destruction under GWB and they will simply pick up where he left off when he left office to finish the job. They have already accomplished additional damage to this country by putting tea party "cave men & women" into the house and senate to prevent President Obama from carrying out any of his committments to the voters and they did it blatantly on TV so that all could witness it.........only those who WANT the destruction to continue would ever consider voting republican again.........Re-elect President Obam in 2012....the only truly patriotic, christian man with the intelligence to bring the USA back to it's greatness!!

June 12 2012 at 2:01 AM Report abuse +1 rate up rate down Reply