Though we approach the fiscal cliff, President Obama has based much of his campaign on allowing Bush-era tax hikes on the wealthy to expire in the name of “fairness.”
In the name of basic economics, however, we have to deal with reality. And in a new study, Ernst & Young finds that increasing tax rates on wealthy taxpayers would have a substantial and sustained negative impact on the economy.
The study, commissioned by a number of business groups including the National Federation of Independent Business, finds that 2.1 million business owners would be subjected to higher rates, most of them through partnerships, LLCs and S-Corporations. The results aren???t pretty.
According to Ernst & Young, economic output would grow 1.3 percent in the long run, costing $200 billion in today’s economy. Employment would fall by another 0.5 percent in the long run, costing the economy around 710,000 fewer jobs in today’s economy.
In addition, capital investment would fall by 2.4 percent in the long run. Wages would fall by 1.8 percent, “reflecting a decline in workers??? living standards relative to what would have occurred otherwise.”
And that???s just the start.
The study states that ???real long-run economic consequences for allowing the top two ordinary tax rates and investment tax rates to rise in 2013. This policy path can be expected to reduce long-run output, investment and net worth.???
Another new study, this one by the conservative American Action Forum, examines the economic effects of the looming fiscal cliff. It maintains that for most small businesses in the top tax brackets, the effective marginal tax rate amounts to a 50 percent tax of their income.
Doesn’t sound very fair — or economically feasible — to me.