By Sven R. Larson, Ph.D.
By now, I am sure you have heard of Taxmageddon – the $494 billion tax increase set to hit America’s already overburdened taxpayers in January 2013. If you haven’t, check out this informative website provided by the Heritage Foundation. Taxmageddon is a combination of expiring Bush-era tax cuts, expiring payroll tax cuts, and new incoming ObamaCare taxes. Together they will create the largest single-year tax increase in American history and very likely the largest tax increase ever created in the entire world.
Taxmageddon will, of course, wreak havoc on our already fragile economy. The only comparable tax increase is the one Sweden went through in 1995-98, when the government took away three percent of GDP per year, three years in a row. This sent the Swedish economy into a lasting depression, brought standard of living to a standstill for a good decade, and caused the permanent loss of hundreds of thousands of jobs.
If Taxmageddon were to happen here in America, we most certainly would experience something similar, only on a much grander scale. To put some perspective on what this massive tax increase would mean, let us break it down to Oregon size. According to the Heritage Foundation, Oregon taxpayers would face a $5.8 billion tax increase, distributed as follows:
- Expiring Bush-era tax cuts: $2 billion;
- Expiring payroll tax cuts: $1.5 billion;
- New ObamaCare taxes: $2.3 billion.
President Obama has indicated that he might want to see the Bush-era tax cuts extended for most taxpayers, but don’t hold your breath on that until there is a bill with his signature on it. And even if Congress and the President reached a deal on that part of Taxmageddon, the remaining parts are bad enough.
To begin with, the cost of the payroll tax hike alone is big enough to place a looming threat of job losses over the Oregon labor market. It remains to be seen how resilient private employers are in the face of this kind of tax hike and just how many private-sector jobs would be on the line. What is absolutely clear, though, is that Oregon cannot afford to lose any private sector jobs: As we reported recently, there has been no real increase in private employment in Oregon over the past decade.
We need more jobs, not fewer.
On top of that, consider the effect of the new ObamaCare taxes. Designed to hit “wealthy” Americans earning more than $250,000 per year, these taxes are eerily reminiscent of the Alternative Minimum Tax (AMT). When first introduced, the AMT was designed to make sure a very small group of very wealthy people could not reduce their tax burden to zero. Today, the AMT is a middle-class problem.
It is more than likely that the ObamaCare taxes will go the same way. For Oregon’s hard-working taxpayers, the $2.3 billion looming to fund the Affordable Care Act are equal to a 23 percent increase in the taxes that Oregonians pay on their personal income each year. That would be a bad-enough tax increase to hit all taxpayers; but since the tax is supposed to be limited to the top two percent of the Beaver State’s earners, the effect will be much more dramatic.
The two percent of Oregonians who earn more than $250,000 pay 38 percent of all personal income taxes in the state. According to the IRS, in 2011 this amounted to a total tax liability of $3.7 billion. If these income earners were hit with the $2.3 billion in ObamaCare taxes, their total tax liability would increase by 61 percent.
Imagine that: For every $100 you pay in taxes this year, you will pay $161 next year.
Added together, the rise in the payroll tax and the new ObamaCare taxes equal the average earnings of 66,139 taxpayers in Oregon. This does not mean that so many people will lose their jobs in 2013 if the payroll and ObamaCare taxes come down on us. But it does raise the question how many more people will have to file for unemployment when Uncle Sam takes $3.8 billion more out of the Oregon economy.
Sven R. Larson, Ph.D., is Senior Fellow in Economics at the Wyoming Liberty Group and a guest contributor for Cascade Policy Institute. He holds a Ph.D. in social sciences with major in economics and has taught economics at colleges in three countries. His research on health policy, taxes, and government budgeting and entitlement reform has been published by free market think tanks across the country.