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MURDOCK: The looming tax trap

Another $2.6 trillion to feed the bureaucracy’s habit

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If pumping money into people's pockets stimulates the economy, vacuuming money from their pockets should depress the economy. Given how sad today's economy is, depressing it even further may make it leap out a window.

The best way to cheer up the economy - and those who make it tick - is for Washington to stop raising taxes and reverse its reckless and relentless spending spree. Congress immediately should remove the boulder that will crush us all come January. The 2001 and 2003 George W. Bush-era tax cuts expire on Jan. 1, 2011. When the old rates return, the Congressional Budget Office calculates, that will cost taxpayers $115 billion next year alone. Between 2011 and 2020, the death of the Bush-era tax cuts will cause $2.6 trillion to shift from private control to Congress for its redistributive pleasure.

The Washington-based Americans for Tax Reform (ATR) has detailed what the demise of these tax cuts will mean to everyone who pays taxes.

First, every income tax rate will rise, not just the top levy on those who populate ski chalets and beach houses. For instance, the bottom tax rate will revert from 10 percent to 15 percent, where it stood before President Bush and pro-market members of Congress cut it. This constitutes a 50 percent increase in the tax liabilities of lower-income taxpayers who probably make just enough to survive. On Jan. 1, their income-tax bills will jump by one-half.

Scaling the income ladder, the 25 percent bracket will rise to 28 percent, the 28 percent bracket will increase to 31 percent, and the 33 percent bracket will grow to 36 percent. These represent middle-class taxpayers - from skilled laborers to urban professionals. They all can expect to send more of their hard-earned income to Washington so that Congress, the White House and the bureaucracy can have their way with it.

Today's 35 percent top bracket will climb to 39.6 percent. While some may savor "sticking it to the rich," surprisingly few wealthy individuals spend all day sailing yachts and sampling lobster with champagne sauce. (Not that there's anything wrong with that.) Americans in the top bracket run companies, start new businesses, launch innovative products and hire other Americans to perform these positive functions. While Democrats routinely denounce "the rich" as if they were un-American, the sad truth is that very few poor people create jobs.

ATR's analysis shows that the top bracket "is also the rate at which two-thirds of all small business profits are taxed." So, those "nasty rich" folks who currently pay the 35 percent rate generate roughly 66 cents of every dollar in taxable, small-company profits. When these same small-business people see their taxes rise 13 percent to the pre-Bush 39.6 percent rate, they will be less likely, not more, to hire people, expand their operations or unleash brand-new enterprises. With this big, fat stick looming less than six months away, no wonder the employment and commercial climates remain grim.

Letting the Bush tax cuts lapse also means that the capital-gains tax will shoot up a third, from 15 percent to 20 percent. The dividends tax will soar 264 percent, from today's 15 percent to 39.6 percent next New Year's Day. The "death tax" on estates as low as $1 million will zoom from zero percent, this year, back to the old 55 percent confiscation level.

American taxpayers are beleaguered and exhausted. Washington politicians consume fresh tax dollars like cokeheads inhaling lines off a coffee table.

Congress should check itself into "rehab": Extend the Bush tax cuts permanently to avoid all of this and even more damage to America's frail economy. Congress then should return federal spending to no higher than 2005 levels, freeze it until 2012, and then limit expenditure growth to each year's combined increases in inflation and population. That would leave sufficient government to shield a free and independent people.

Rehab is not pretty, but it beats being found face down, penniless, in the gutter.

Deroy Murdock is a nationally syndicated columnist with the Scripps Howard News Service and a media fellow with the Hoover Institution at Stanford University.

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