The Tax Man Cometh

The following is a synopsis of a recent Wall Street Journal editorial written in part by Dr. Arthur Laffer. In addition to being president of Laffer Associates, he is a founding member of the Congressional Policy Advisory Board and has worked with the 105th, 106th and 107th U. S. Congress. He was a member of President Reagan’s Economic Advisory Board for both terms and is best known for his belief in supply side economics to foster growth.


Among the numerous tax increases due to hit hard working Americans is the expiration of the temporary 2% payroll tax cut. This reduction was enacted last year and renewed again in January. The reduction applies to the first $110,100 of income and is set to expire on December 31. For a person making $50,000 a year, this results in $83 more a month in take home pay. Interestingly enough, this is the least painful of the many increases we will see beginning in 2013 if congress fails to act.

First on the slate is a huge increase in the estate tax. The current $5 million exemption goes all the way down to $1 million while the top estate tax bracket increases from 35% to 55%. Business owners and people with illiquid assets will be hit the hardest.

The top federal rate on personal income will increase to 39.6% from 35% with an additional 0.9% tacked on the payroll tax to help fund Medicare.

The highest tax rate on dividends will jump to 43.4% from the current maximum of 15%. Capital gains tax rate will go to 23.8% from 15%.

These are a result of the expiration of the Bush tax cuts and new taxes imposed by ObamaCare legislation.

Dr. Laffer points out that these increases will not only generate almost $500 billion a year in newly collected taxes, but will have a drastic affect on an already fragile recovery. He believes the drop in GDP we’ve been seeing for the last couple of years is due to businesses and consumers bracing for the storm. GDP was 4% at the end of 2010 and came in at an annualized rate of 1.5% in the last quarter.

In the end, he states that “…we cannot have a prosperous economy when government is overspending, raising tax rates, printing too much money, over-regulating and restricting the free flow of goods and services across national boundaries.”