When millions of
If you neglected to readjust your income-tax withholding following passage of last year’s biggest-in-history, retroactive-to-January 1993 tax hike, expect to get hammered.
Think about it. Hiking the income-tax rate from 31 percent to 36 percent for people earning $115,000 or more is bad enough. But pushing it to 39.6 percent (42.5 percent including the increase in Medicare payroll taxes) for those with incomes above $250,000 is even worse.
And by making the increase retroactive, the administration (inadvertently or not) has ensured that many successful Americans-executives, doctors, attorneys, investors, business owners, and other professionals-will owe big bucks at tax time. Any of these individuals who didn’t take the trouble to send extra money to the IRS the last four months of 1993 is going to be writing Uncle Sam a check for thousands of dollars. Fortunately, the IRS will allow you to pay the additional taxes on the installment plan.
Consider the example of a family with $200,000 in taxable income. If income was withheld on the basis of a 31 percent top rate-as existed before the Clinton tax hike was approved-and additional income wasn’t withheld after the tax change, the family will owe Uncle Sam an additional $3,000. And this retroactive tax bite won’t just hurt the living: It even applies to the dead in the form of retroactive estate taxes.
Now, if your accountant has been watching out for you, you may be lucky: You only get slapped with the largest increase in tax rates since the days of Herbert Hoover. According to Business Week, if you’re the “average” CEO, you earned some $984,000 in salary and bonuses in 1992, excluding stock options and dividends. If we assume taxable income in the neighborhood of $900,000, this means you will pay roughly $80,000 more to Uncle Sam in 1993-enough to buy a couple of new cars or pay tuition for the kids.
And when the economy stalls again, or takes another dip, you’ll be caught again-as your company’s sales and earnings fall. After all, the economy has taken a dive following every major tax hike in the 20th century. There’s no reason to believe it won’t do the same this time.
My colleague, Daniel Mitchell, has come up with an even more interesting way to show the impact of the
Some months ago, Mitchell filed a Freedom Of Information Act request with the U.S. Treasury Department to obtain data showing the impact of the
The report should prove especially interesting to business executives, many of whom live in the areas hardest hit by the tax hike. It not only identifies which states and congressional districts will bear a disproportionate burden of the tax increase, it also indicates that many of the lawmakers representing those states and districts voted in favor of the tax hike. In other words, many lawmakers representing communities with large numbers of financially successful constituents voted against the interests of those constituents.
Look at New York Rep. Carolyn Maloney, a first-term congresswoman representing the 14th Congressional District, covering Madison Avenue,
Similarly, residents of
Moving south, we encounter one of the more interesting examples: first-term Rep. Marjorie Margolies-Mezvinsky. She won the election in the 13th district in suburban
On the other side of the country, 10-term Rep. Henry Waxman represents
Most puzzling of all is Sen. Daniel Patrick Moynihan’s vote in favor of the tax hike. The chairman of the Senate Finance and Banking Committee had plenty of time and opportunity to protect the interests of his constituents. Yet, not only did he vote for the bill, which will make
And why did Reps. Jane Harman and Lynn Woolsey of
Part of the reason may be secrecy: Mitchell says that until the government complied with his FOIA request, members of Congress could soft-pedal the impact of the tax increase on their constituents. Now that the information is available, they can run, but they can’t hide.
Whatever the reason, it doesn’t make sense to take resources out of the economy for the sake of “deficit reduction,” when those resources will be used to increase federal spending, while reducing the size of our pocketbooks. Remember: George Bush, who should have known better, made a tax-hiking deal with Congress in 1990 to reduce the deficit. The higher taxes didn’t bring as much as expected into federal coffers, Congress passed spending programs as if they did, and the economy slid into a recession. Now we have a president who doesn’t know any better than to raise taxes, and members of Congress who vote to raise them, even though it might hurt them politically.
The rich will manage, because they have the wherewithal to protect themselves in various ways from higher taxes. But
Edwin J. Feulner, Ph.D., is president of The Heritage Foundation, a Washington, DC-based public policy research institution. He also serves on the boards of several other foundations and research institutes. Dr. Feulner is the author of “Conservatives Stalk the House.”