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1 William McBride, How States Would Be Affected by Obama's Proposed Tax Increases on High-Income Earners 1 (2012)

handle is hein.taxfoundation/ffdddxz0001 and id is 1 raw text is: October 25, 2012 No. 333 How States would be Affected by Obama's Proposed Tax Increases on High-Income Earners By William McBride, PhD President Obama's campaign to raise taxes on high-income earners presents an overly simplistic view of the economy, as if tax increases only affect those people who write checks to the IRS. However, when high- income families are hit with additional taxes, they don't keep it to themselves. They reduce spending on goods and services, hurting the local businesses that provide those things. This results in less hiring and investment by those businesses and ultimately less income for the whole community. The workers in these businesses also reduce their work, since they get paid less for it after taxes. High-income taxpayers also respond to tax hikes by saving and investing less of their income, since they keep less of the returns after taxes on capital gains and dividends. All of this hurts economic growth over the long run. Businesses are also directly affected by the president's proposed tax increases, since the vast majority of businesses file under the individual tax code. These so-called pass-through businesses, such as partnerships, S corporations, and sole proprietors, earn more income and employ more workers than do traditional C corporations, which file under the corporate code. Further, most of this pass-through business income (about 66 percent) is reported by taxpayers earning more than $250,000.1 This is why economic analyses that take into account the pass-through business sector find that significant harm is done to the economy by raising personal income tax rates on high-income earners.2 For example, economists Robert Carroll and Gerald Prante found that 710,000 jobs would be lost as a result of the president's tax policies.3 1 Scott A. Hodge & Alex Raut, Individual Tax Rates Also Impact Business Activity Due to High Number of Pass- Throughs, Tax Foundation Fiscal Fact No. 314 (June 5, 2012), http:/itaxfounidation.orgiaricie/individual-tax-ra~tcs-al so-impact-business- a ctivi ty__d_u_-hgh-n umber rpass-thr oughs. 2 Stephen Entin & William McBride, Simulating the Economic Effects of Romney's Tax Plan, TAX FOUNDATION FISCAL FACT NO. 330 (Oct. 3, 2012), http://taxfoundation orgiarticle/simulating-economnic-effccts-romneys-tax-plan. SRobert Carroll & Gerald Prante, Long-run Macroeconomic Impact of Increasing Tax Rates on H-igh-income Taxpayers in 2013, Ernst and Young, July 2012, http:/iwaysandmeans~hous.govuploadedfilcs/ey sudy long- run macroeconomic impact of inlcreasing tax rtes on high income ta×xpa__rers in 2013 2012 07 16 finah~pdf.