Monday, September 20, 2010

If the Bush Tax Cuts Expire, The Middle Class Will Suffer

By Kevin J. Price

The left continues to beat the drum that the Bush tax cuts -- which contributed to an incredible expansion of the economy through much of the decade -- only helped the rich and need to go. The reality is, according to the Tax Foundation, if these tax cuts expire, the middle class will find themselves severely punished financially. The expiration of the Bush cuts, Obama's taxes on cigarettes, the new health care taxes (seven new ones that target those who make less than $200,000 a year), and the administration's push for Cap and Trade are all harming those in the group that the President claimed would not see new taxes.

A press release from the Tax Foundation states: "Report Shows How Expiration of Bush-Era Tax Cuts Would Affect Average Middle-Income Family by State, Congressional District." It is an informative report that clearly shows that the direct tax increases on the middle class will be significant, let alone the fact that it will hurt those who invest in job creation and the jobs they produce.

The study examines an average family in the middle 20 percent of the income spectrum and compares their 2011 tax burden to what it would be if the tax cuts are extended. The study notes that, nationally, the typical middle-income family with a median income of $63,366, would see its federal income taxes go up by $1,540 if the Bush tax cuts are allowed to expire. This number is well below the magic "up to $200,000" spoken by Obama and his surrogates in the 2008 campaign as an income level that would be exempt from tax increases during his administration.

Scott Hodge, President of the Tax Foundation noted that "The impact of the expiration or extension of the Bush-era tax cuts on families varies according to myriad factors such as income level, sources of income, marital status, number of children and housing status... Family circumstances differ significantly across geographic regions as well." That is exactly why the Foundation broke down the number on several different levels, including states and even Congressional districts.

The study notes that the number of children a family has certainly plays a role. Ironically, the larger the family, the greater the negative impact on the heads of the household because the more children a family has, the greater the increase in taxes because the child tax credit will drop significantly from $1,000 per dependent child to $500. In the same vein, married families will face different circumstance than single families because of the "marriage penalty" provisions that will come back to full force if the tax cuts are not allowed to continue. Failing to marry would not only continue to be more fashionable, but also more profitable.

The study also looks at the impact on certain states and the National Center for Policy Analysis, which recently examined the content of the report, noted that "The average-middle income family in Alaska, which has a median income of $79,541, would pay nearly $2,000 more in federal income taxes in 2011 if the tax cuts expire. By contrast, the typical family in West Virginia, with a median income of $49,082, would pay about $1,300 more. The differences are great among the hundreds of congressional districts as well." Those differences are due largely to the median incomes of those states, which is driven by the cost of living and other factors. The Foundation has produced a tool at MyTaxBurden.org to determine how the increase will effect individual taxpayers. Specifically, individuals will be able to compare their 2011 tax burden in light of different scenarios, such as the expiration of the tax cuts, extension of them into 2011, or if they are made permanent.

Many liberal politicians are advocating extending the cuts for those that make less than $200,000 a year in order to be compliant with the President's "no new tax pledge." Unfortunately, that means a large increase of the tax burden on job creators, which is why the Obama government continues to be seen as one of the most hostile ever on entrepreneurship.

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Kevin Price
Host, Price of Business, M-F at 11 am on CBS Radio News
Frequently found on Strategy Room at FoxNews.com
Syndicated columnist whose articles appear on a variety of media outlets.
His http://BizPlusBlog.com/ is ranked in the top 1 percent of all blogs by Technorati.
Kevin Price's Profile: http://www.google.com/profiles/PriceofBusiness

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