Recently, an email was forwarded to me announcing a new 3.8 percent sales tax on real estate. I quickly pulled up factcheck.org, and I discovered that the claims were largely false. However, there was a hint of truth in the allegations, in as much as, in 2010, the Democrats increased taxes on the top 2 percent of earners in the U.S. to help pay for Health care. The new tax is called a “Medicare tax,” and it will go into effect on January of 2013. This Medicare tax will not only apply just wages, but it will also apply to investment income such as income from capital gains, dividends, interest and rental property. However, the tax is targeted, and the only individuals, who will be affected, are those who make over $200,000 a year (or $250,000 per year for married couples filing jointly). This amounts to the top 2 percent of tax payers.
I seem to hear a lot of complaining from friends and family members any time the US federal government raises taxes in whatever form. This complaining occurs despite the fact that capital gains taxes have not been this low, since 1933. Back in 1933, capital gains were taxes at 12.5 percent. Today, capital gains are taxes at 15 percent. In 1988, at the end of the Regan administration, capital gains were taxed at 28 percent. See the following site for a historical chart–http://www.ctj.org/pdf/regcg.pdf
Currently, the top tax rate is 37.9 percent, which is well below historical averages. Moreover, as a percent of Gross Domestic Product (GDP), tax revenue (or the amount of money that the Federal government receives in taxes) is at an all time low.
2009, 15.1 percent of GDP
2010, 15.1 percent of GDP
2011, 15.4 percent of GDP
You have to go back to 1950 to find a lower percentage (14.4 percent of GDP in 1950) of federal government receipts.
On the other hand, federal government expenditures are at an all time high.
2009, 25.2 percent of GDP
2010, 24.1 percent of GDP
2011, 24.1 percent of GDP
You have to go back to WWII to find a higher percentage (41.9 percent in 1945).
Federal expenditures are up, and federal tax revenues are down. This is the reason why the federal government is running such massive deficits. Between 1975 and 2011, the average federal expenditure as a percent of GDP has been 21.1 percent. Between 1975 and 2011, the average federal revenue from tax receipts as a percent of GDP has been 18 percent. There is no doubt that the federal government needs to return to spending less and receiving more. Tax rates need to increase, and spending needs to decrease. This is not a controversial topic. These are just the facts. The real question is when should austerity begin?
The recession began in December of 2007, and in late 2008, the shit hit the fan in terms of the US economy. Jobless claims were on the rise in 2008, and they peaked in February of 2009, one month after Obama was sworn in as president, with over 650,000 new filings for unemployment. In February of 2009, the unemployment rate was at 8.3 percent, but by October of 2009, the unemployment rate had reached 10 percent (even though new jobless claims were failing at 425,000 per month). In 2012, jobless claims have been hovering around 375,000 per month, which is about what they were in early 2008 before the collapse, and the unemployment rate is 8.2 percent.
Since this is a global recession (and not just a US recession), many fear that our current hard times will be long-lasting and deep. Many fear that raising taxes will slow the US economy and perhaps bring about a second recession. However, the Bush tax cuts of 2001 and 2003 failed to deliver broad-based economic growth and job creation, and they certainly failed to bring about long-term economic growth. So, I say, “Let the Bush tax cuts expire in 2013, not just for the wealthy, but for everyone.” And, use the extra money from raising taxes to do massive investments in education, in transportation, in energy, in research and development.