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NTU Strongly Supports S. 1738, the “Economic Growth and Jobs Protection Act.”
A Letter to The Honorable John Cornyn.
December 5, 2011
The Honorable John Cornyn United States Senate Washington, DC 20510
Dear Senator Cornyn:
On behalf of the 362,000-member National Taxpayers Union (NTU), I write in strong support of your legislation (S. 1738), the “Economic Growth and Jobs Protection Act.” This bill would repeal the pending 3.8 percent surtax on certain forms of income that was passed as part of the Patient Protection and Affordable Care Act (PPACA) of 2010.
One of the more contentious fiscal policy matters confronting this Congress centers upon allowing current income tax rates for upper-earners to revert to year-2000 levels, and more recently instituting surtaxes on wealthier individuals to underwrite expensive job-creation schemes. Often lost amid these debates is the cold, hard fact that for many of these taxpayers, rates will be rising significantly without any further congressional action. Barely 13 months from now, a 3.8 percent tax on “unearned income” (a terribly misleading term) will befall those who have certain investment and other gains to report on their returns.
The negative consequences of this policy are legion. Burdening capital gains and dividend income with “ordinary” rates has been widely regarded as a classic case of double taxation, one which policymakers sought to ameliorate in a bipartisan fashion with the Taxpayer Relief Act of 1997. The legislation helped to sustain a major economic expansion that saw the rise of a burgeoning “investor class” spanning millions of middle-income American households. This, along with further reductions in capital gains rates (and a new policy toward dividends) in 2003, also preceded a rise in government revenue – a fact that should not be lost on elected officials during the current string of trillion-dollar federal budget deficits. Raising such tax rates, especially in the not-too-distant future, could jeopardize not only economic growth but also revenue growth.
Additionally, the 3.8 percent surtax would bring two unwelcome wrinkles in the tax laws. Because the income threshold for the new surtax would begin at $200,000 for single filers and $250,000 for joint filers, a new “marriage penalty” would be introduced into the system. Much lesser-known, and arguably more dangerous, is that these same thresholds are not indexed for inflation. As a result, increasing numbers of Americans will be trapped by the tax in years to come.
An NTU study published in 2010 entitled “Spreading Virus” conducted several illustrative examples of how this “bracket creep” could overtake millions of unsuspecting households. At the 2.1 percent intermediate-term rate of increase for the Consumer Price Index projected in President Obama’s Fiscal Year 2011 budget, the thresholds described above would need to expand to approximately $246,000 and $308,000, respectively, to keep up with inflation over ten years. If tied to the projected ten-year growth rate of the Average Wage Index, used for the Social Security taxable earnings threshold, the figures would be $293,000 and $367,000, respectively.
Granted, these effects would be subject to the vagaries and vicissitudes of the economy. Yet, it was precisely the neglect of such factors from policymakers that has, over some 40 years, permitted the Alternative Minimum Tax to mutate into a threat that stalks tens of millions of tax filers – a situation only alleviated through periodic and often tardy extensions of a “patch.”
Clearly the best remedy for such problems surrounding the 3.8 percent surtax is to protect taxpayers from its ever taking effect. While NTU supports full repeal of PPACA as well as several other proposals to excise its various offensive components, your legislation would achieve the goal of permanently shelving the surtax in a simple and straightforward manner.
Individuals as well as small businesses paying taxes as “pass-through” entities deserve clarification in this uncertain time that their investments (and in the case of businesses, job-creation activity) won’t be punished by harsh taxation in service to equally harsh health care mandates. For this and the many other reasons outlined above, NTU recommends swift passage of S. 1738. A “Yes” vote on this legislation would be heavily weighted as a pro-taxpayer vote in NTU’s annual Rating of Congress.
Sincerely,Pete Sepp Executive Vice President