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US Debt Ceiling Deal Includes Future Tax Hikes

by Leroy Baker,, Washington

08 August 2011

In a recent paper, the President of the Tax Foundation, Scott A. Hodge, points out that the latest United States debt ceiling agreement contains a built-in USD3.5 trillion revenue increase, despite all political protestations that it does not raise taxes.

“One of the least reported facts about the 11th hour debt limit deal between the White House and Congressional leaders,” he writes, “is that it assumes that on January 1, 2013 virtually every working American will begin paying much higher taxes than they are today.”

Hodge explains that all US budget projections are based on the "current law" baseline that assumes that all of the Bush-era tax laws expire as scheduled after December 31, 2012 - “this means that all income tax rates will go up across the board, the child credit will fall from USD1,000 to USD500, the marriage penalty will return. Moreover, the current law baseline also assumes that the alternative minimum tax will not be ‘patched’ and will affect tens of millions of unsuspecting taxpayers.”

“Under this baseline scenario the federal government is estimated to collect USD39 trillion in tax revenues over the next ten years,” he concludes. “So by assuming taxes have already gone up lawmakers can say that they have not, ‘technically’, increased taxes.” In fact, if all the tax policies that are currently in place were extended for the next ten years, only USD35.5 trillion, or some 10% less, would be raised in revenues over the same period.

Hodge adds that federal spending was expected to total nearly USD46 trillion over the next ten years. The compromise plan would reduce that by a planned USD2.4 trillion, which would amount to an overall spending cut of only 5.2%.

TAGS: tax | economics | fiscal policy | tax credits | United States | revenue statistics | individual income tax

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