The Drudge Report today played up this article about coming middle-class tax hikes. Although Reuters has pulled the article, many people are still reading it at various websites, so it is important to note and correct its appalling inaccuracies:
– The article asserted that the Obama budget would allow the 10 percent, 25 percent, and 28 percent brackets to expire, boosting those rates to 15, 28, and 31 percent, respectively. In reality, the budget would permanently extend the lower rates.
– The article asserted that the Obama budget would raise the dividend tax rate to 39.6 percent. In reality, the budget would raise the rate only to 20 percent.
– The article asserted that the Obama budget would allow taxpayers’ option to deduct state and local sales taxes to expire. In reality, the budget would extend that option through 2011.
President Obama would permanently extend the Bush tax cuts for households with incomes below $200,000 ($250,000 for couples); statements that the president would allow the Bush tax cuts to expire are true only for households above those income levels. The president has also proposed some additional middle-class tax cuts.
Should this make us happy about President Obama’s budget? Quite the opposite. As Arthur Brooks, Alex Brill, and I have pointed out, the middle-class tax cuts that the president would extend have large revenue losses and do relatively little to promote economic growth. The tax cuts at the top that the president would allow to expire would significantly lower marginal tax rates on saving and investment and promote long-run growth. Letting those tax cuts expire would ultimately harm the middle class by lowering their wages.
Evaluation of the administration’s policies must be based on facts, not fabrications and false rumors. The Obama budget wouldn’t raise income taxes on the middle class. But it would increase marginal tax rates, threatening the long-run growth that sustains the well-being of Americans in all income groups.