KERRY'S TAX PROPOSAL WILL HURT AMERICA'S MIDDLE-CLASS
September 2, 2004
Presidential candidate John Kerry (D-Mass.) is proposing raising taxes on taxpayers with incomes over $200,000. But what is often forgotten is his project to raise taxes on families with taxable incomes of $80,000 and even less.
Kerry plans to raise the maximum amount of income on which the 12.4 percent Social Security payroll tax would be levied from the current $87,900 to $120,000. Economist Martin Feldstein says this would impose higher taxes on individuals that few would consider rich. For instance:
- A $110,000 salary earner with a spouse who looks after two kids (a taxable income of $79,000 with typical income tax deductions) will have their tax bill increased by 20 percent.
- Today, taxpayers who earn between $87,900 and $120,000 will see their overall marginal tax rate increase from 33 percent to 43 percent.
Feldstein says such increases in marginal taxes tend to discourage work, likely reducing an individual's taxable income by 7 percent. Thus, someone who now earns $110,000 would reduce their taxable income to $102,000. For many individuals, this would mean government would actually take in less tax revenue after the tax hike.
The total impact of Kerry's tax proposal -- captured by the "deadweight loss" or the pure waste resulting from tax distortions in the economy -- is estimated to be $5 billion in new tax revenues and $14 billion in imposed costs on the private sector. That is, it would cost taxpayers $3 for every extra dollar of revenue that the government collects.
Source: Martin Feldstein, "The $110,000 Question," Wall Street Journal, September 1, 2004.
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