December 14, 2012
President Obama’s plan to increase taxes primarily on “high-income earners” and small businesses will have devastating effects on the economy, according to a new report from The Heritage Foundation’s Center for Data Analysis.
“Private-sector employment in the U.S. economy would fall by an average 1.1 million jobs (1 percent) per year,” explain Heritage economists Bill Beach, John Ligon and Guinevere Nell. ”And Americans would work 2 billion fewer hours relative to baseline levels.”
Not only that, but the tax hike wouldn’t achieve its intended effect of increasing revenue by $160 billion per year. Instead, it would generate only about $68 billion per year.” This is due, the report notes, “to a smaller tax base commensurate with the smaller economy. For example, fewer hours worked and lower real wages result in less federal income and payroll tax receipts.”
The Center for Data Analysis has developed a unique dynamic model that forecasts how policies like tax increases affect human behavior. Most models, including those used by the government, assume no such changes. For example, many official government projections fail to note that Americans change their saving and investment behavior based on tax policies.
What do you think of proposals to increase tax rates just for high earners?