The Honorable John CornynUnited States SenateWashington, DC 20510
Dear Senator Cornyn:
Onbehalf of the 362,000-member National Taxpayers Union (NTU), I write in strongsupport of your legislation (S. 1738), the “Economic Growth and Jobs ProtectionAct.” This bill would repeal the pending 3.8 percent surtax on certain forms ofincome that was passed as part of the Patient Protection and Affordable Care Act(PPACA) of 2010.
Oneof the more contentious fiscal policy matters confronting this Congress centersupon allowing current income tax rates for upper-earners to revert to year-2000levels, and more recently instituting surtaxes on wealthier individuals tounderwrite expensive job-creation schemes. Often lost amid these debates is thecold, hard fact that for many of these taxpayers, rates will be risingsignificantly without any further congressional action. Barely 13 months fromnow, a 3.8 percent tax on “unearned income” (a terribly misleading term) willbefall those who have certain investment and other gains to report on theirreturns.
Thenegative consequences of this policy are legion. Burdening capital gains anddividend income with “ordinary” rates has been widely regarded as a classiccase of double taxation, one which policymakers sought to ameliorate in abipartisan fashion with the Taxpayer Relief Act of 1997. The legislation helpedto 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 towarddividends) in 2003, also preceded a rise in government revenue – a fact thatshould not be lost on elected officials during the current string oftrillion-dollar federal budget deficits. Raising such tax rates, especially inthe not-too-distant future, could jeopardize not only economic growth but alsorevenue 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 forsingle filers and $250,000 for joint filers, a new “marriage penalty” would beintroduced into the system. Much lesser-known, and arguably more dangerous, isthat 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 “bracketcreep” could overtake millions of unsuspecting households. At the 2.1 percent intermediate-termrate of increase for the Consumer Price Index projected in President Obama’sFiscal Year 2011 budget, the thresholds described above would need to expand toapproximately $246,000 and $308,000, respectively, to keep up with inflationover ten years. If tied to the projected ten-year growth rate of the AverageWage Index, used for the Social Security taxable earnings threshold, thefigures 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 athreat that stalks tens of millions of tax filers – a situation only alleviatedthrough periodic and often tardy extensions of a “patch.”
Clearlythe best remedy for such problems surrounding the 3.8 percent surtax is toprotect taxpayers from its ever taking effect. While NTU supports full repealof PPACA as well as several other proposals to excise its various offensivecomponents, your legislation would achieve the goal of permanently shelving thesurtax in a simple and straightforward manner.
Individuals as well as small businesses payingtaxes as “pass-through” entities deserve clarification in this uncertain timethat their investments (and in the case of businesses, job-creation activity)won’t be punished by harsh taxation in service to equally harsh health caremandates. For this and the many other reasons outlined above, NTU recommendsswift passage of S. 1738. A “Yes” vote on this legislation would be heavilyweighted as a pro-taxpayer vote in NTU’s annual Rating of Congress.
Sincerely,
Pete SeppExecutive Vice President