Majority Leader Hoyer confirmed in a speech last week that Democrats intend to raise taxes on upper-income wage earners—tax increases that will also significantly impact small business and cost jobs. Raising taxes in the midst of the worst recession in 30 years is a profoundly bad idea, but now Hoyer is saying that middle class tax increases are also needed.
Broken Promises: Less than two years into Obama’s presidency, Democrats are breaking en masse from their campaign pledge to avoid raising taxes on middle income families. According to the Tax Policy Center, increasing taxes on the middle-class will raise taxes on those making less than $250,000 by over $1.3 trillion.
Tax and Spend: Majority Leader Hoyer’s rhetoric is consistent with the policies that have been adopted since President Obama assumed office. Spending has increased by nearly $1.8 trillion; non-defense discretionary spending has skyrocketed 84 percent. And while the debt and deficits continue to increase far beyond sustainable levels, the only solution the Democrats have adopted is more spending, followed by even more taxes. As troubling as massive tax increases are, even more troubling, is the fact that most of the tax increases implemented by the Democrats have not gone toward improving our fiscal crisis, but have been allocated toward increasing the size of government.
As Chart 1 shows, the credibility associated with the Democrats proposed spending freeze is laughable. However, no one is laughing about the $670 billion in tax increases already implemented, and the trillions in new taxes that are currently being proposed.
The Real Story: As part of Leader Hoyer’s arguments for across-the-board tax increases, he consistently points to the success of the 1990’s, and associates the 1993 tax increases as being responsible for “ushering in a decade of prosperity.” However, there are substantial differences between then and now. First, bipartisan compromises cut the size of government from nearly 22 percent of the economy [GDP] in 1990 to 18.2 percent of the economy [GDP] in 2000—well below the historical average. Current Democrat budgets significantly increase the size of government and never allow spending to drop below 23 percent of the economy [GDP] for the next ten years [See chart 2]. Secondly, the greatest real GDP growth during that time period began in 1997, after substantive tax cuts such as the Taxpayer Relief Act was implemented, which included, among others, reductions to the lowest marginal tax rate, estate tax, and capital gains taxes.
Finally, the increase in taxes is not necessarily correlated to an increase in government revenue. In fact, economic variables can play a much larger role. After the ’01 and ’03 tax cuts were absorbed into the economy, there was a significant increase in government revenue. After the 2003 tax cuts were passed, revenue increased from 16.2 percent of the economy [GDP] to 18.5 percent of the economy [GDP] by 2007.
The public is tired of Democrat excuses for the need to constantly increase taxes. In the midst of the second worst economic contraction, people need tax relief—not tax increases—and the government needs to be scaled back with real spending restraint.