2012 Tax Initiative Petitions

7/20/12

Under current law, American families and businesses are facing nearly half a trillion dollars in increased federal taxes next year. If Congress and the President fail to take action, this unprecedented expansion in federal taxes will equal nearly $1,600 for every man, woman and child in the United States.

The specter of these enormous additional tax burdens is already causing a significant negative impact on our economy. Investors, businesses and families alike are delaying investments and foregoing purchases until they know what to expect in the federal tax arena. The economic stagnation caused by government-created uncertainty is slowing private sector job creation and preventing millions of unemployed Americans from going back to work.

The combined expiration of the Bush-era tax cuts, the ending of employer payroll tax reductions and enormous new taxes imbedded in President Obama’s Affordable Care Act will cost American taxpayers at least $494 billion next year. The preponderance of these tax increases will be levied on America’s middle class, working families and the owners of the small businesses that create nearly three out of every four new jobs.

About a third of the tax increases result from the expiration of the Bush-era reductions in marginal tax rates. On January 1^st most federal income tax brackets will increase by about three percent resulting in $56 billion in additional tax liability. The current ten-percent bracket for the lowest income earners will be eliminated. Those taxpayers currently subject to the ten percent bracket will apparently revert back to the twenty-eight percent bracket creating an additional $37 billion in federal tax liability.

Federal capital gains taxes will increase from 15 percent to 20 percent and the tax rate on earnings from dividends will increase from 15 percent to 39.6 percent adding another $29 billion in federal tax liabilities. Moreover, the marriage penalty will be reinstated costing taxpayers another $17 billion and the Child Tax Credit will be reduced from $1,000 to $500 per child costing taxpayers an additional $6 billion. Tax breaks for the costs of education, dependent care, adoption, and employer-provided child care will also be lost.

The existing changes in the federal death-tax policy will expire December 31^st.This will cause the tax-rate to increase from 35 percent to 55 percent and the amount exempted from taxation to fall from $5 million to $3.5 million. For example, the federal death tax on a $5 million estate would increase from zero to $825,000.

The expiration of the Bush-era changes to the Alternative Minimum Tax will account for about one-fourth of the massive tax increase. This tax was originally levied to stop high income earners from using deductions and tax credits to prevent having to pay any income tax. Inflationary increases over several decades resulted in middle class income earners being unintentionally subjected to the tax.

To alleviate that problem Congress enacted a temporary change to adjust the income trigger. The Heritage Foundation estimates that the expiration of that temporary adjustment will result in middle class families and employers having to pay nearly $120 billion in additional Alternative Minimum Tax.

Congress temporarily reduced the employee’s portion of the Social Security payroll tax by two percent as part of the effort to stimulate the economy. Expiration of that reduction will reduce employees’ paychecks about $125 billion in 2013.

Most of the remainder of the tax increase is the result of the myriad new taxes imbedded in the Affordable Care Act.

So, how will this enormous federal tax increase affect Oregon’s economy?

According to the Cascade Policy Institute, Oregonians will pay about $5.8 billion in additional federal taxes next year if Congress fails to address the current tax laws. The increase is comprised of about $2 billion in federal income taxes, $1.5 billion in restored payroll tax contributions, and $2.3 billion in new taxes imbedded in Obama’s Affordable Care Act. This amount is equivalent to nearly 80 percent of Oregon’s entire biennial General Fund /Lottery budget!

The Cascade Policy Institute recently reported that Oregon has had no real increase in private employment over the past decade. The Oregon Department of Employment reports that only a little more than 60 percent of our State’s employable workforce currently has a job. In my opinion, excessive taxation and regulation, both at the state and federal levels, are the primary reasons for that dismal employment record.

We can only imagine the harm that enacting an 80% increase in Oregon taxes would do to our State’s already tenuous financial and employment situations. This enormous impending federal drain on Oregon’s economy is even worse than an Oregon tax because the preponderance of the federal tax money to be collected will not be spent in Oregon.

In my opinion, our nation is in eminent financial crisis. Congress must find the will and the means to reduce the size and the cost of government and to re-establish the free market system that has built and nurtured our economy for more than two centuries. A good place to start would be to roll back the impending half trillion dollar tax increase and instead focus on cutting expenditures.

Please remember, if we do not stand up for rural Oregon, no one will.

Best regards,

Doug
 

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