NCPA - National Center for Policy Analysis

TAXES ARE HEADED UP

October 9, 2008

With the coming expiration of the Bush tax cuts, federal income taxes are about to increase sharply, and automatically.  In fact, they will occur without action by Congress or the president, according to James Carter, an economist for the U.S. Senate, and James Miller, senior advisor at Husch Blackwell Sanders, LLP. 

Under conventional "current law" accounting, when a tax cut expires, marginal tax rates are forced higher, but budget officials do not see this as a tax increase at all. 

However, according to the Congressional Budget Office (CBO), real bracket creep and an automatic tax increase will cause federal tax revenue to jump from 17.9 percent of gross domestic product (GDP) this year to 20.4 percent by 2018.  Therefore, without passing a single new law or changing a single statute, the federal government will extract an increasing share of the economy over the next 10 years, say Carter and Miller.

But how large are the tax increases facing taxpayers?

  • If Congress were to stabilize federal revenue at its 30-year average of 18.4 percent of GDP, taxpayers would keep an extra $2.6 trillion over the next 10 years.
  • In absolute terms, $2.6 trillion is slightly more than all the individual income taxes the federal government will collect in fiscal years 2008 and 2009 combined.
  • That amounts to roughly $22,000 per household -- enough to buy a new car or to make a meaningful down payment on a home.
  • Even by government standards, $2.6 trillion is a large amount of money.

Our elected officials may ultimately decide it is necessary to allow federal revenue to rise above its historical average, and voters may also decide to deny them re-election, but taxpayers deserve the truth.  Instead, we are subjected to political word games designed to hide the fact that our tax bills are slated to increase significantly unless Congress acts, say Carter and Miller.

Source: James Carter and James C. Miller III, "Don't Be Fooled By Word Games: Taxes Are Headed Up Regardless," Investor's Business Daily, October 7, 2008.

 

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