No Taxpayer Protection Pledge signer voted for a tax increase this week. No one—except President Obama—has broken their tax pledge to their constituents. President Obama is wrong to say that Republicans voted for a tax increase.
As December 31, 2012 became January 1, 2013, taxes went up automatically on every American. The top marginal income tax rate rose from 35 to 39.6%. The death tax rate rose from 35 to 55%, with an exemption of $1 million. The capital gains rate rose from 15 to 23.8%. The dividends rate rose from 15 to 43.8%. $1 trillion in Obamacare tax increases went into effect. The 2 percentage point payroll tax rebate expired. This was a permanent change in tax law, and a permanent tax hike on the American people.
This tax increase did not happen because of Republican Pledge signers. The House, for example, voted to make all income tax rates permanent as part of the House budget, and also in H.R. 8 in July 2012. Senate Republicans repeatedly emphasized that their goal was to avoid income tax increases on any American. This happened because President Obama wanted it to happen - if the President wanted to extend tax relief for middle class Americans, he would have done so when his party controlled both the White House and Congress in 2009 and 2010. He would have campaigned in 2012 on more than a one-year tax hike reprieve for families making less than $250,000 per year. The President wanted taxes to go up on New Years Eve, and they did. They rose for each and every American family and small business.
Because of this tax increase, Congress’s job after that was to cut taxes for the American people, and that’s exactly what lawmakers did.
On New Years Day, the Senate and House voted on a bill to cut taxes by $3.7 trillion over the next decade. The American people deserved a bigger tax cut; they deserved a cut that made permanent the levels in place from 2003 through 2012. But there is good news. This tax cut bill permanently secures tax relief for 99% of Americans. It sets a tax rate schedule permanently. It patches the AMT permanently. It cuts the dividend tax rate permanently. Importantly, income tax bills for those making less than $250,000 per year will not rise from 2012 levels, ever. As House Ways and Means Committee Chairman Dave Camp (R-Mich.) said on the House floor last night, this tax bill “settles the level of revenue Washington should bring in.” For the first time in a long time, the tax revenue baseline is permanent.
Because this bill was clearly a tax cut (to say otherwise is to pretend that the Obama tax increase never happened), there were no Taxpayer Protection Pledge implications to this vote. This bill was a tax relief bill. No Pledge signer is obligated to support tax relief, so those who voted against this bill weren’t violating their Pledge, either. Going forward, with the specter of automatic tax increases effectively eliminated, tax increases will be clear and obvious, and questions about the Pledge will be less difficult. If, as is anticipated, Obama presses for tax increases this year, Pledge signers will stop him cold.
Now the focus turns to the real problem: spending. Over the next 90 days, Congress will have three opportunities to cut spending: during debate regarding the sequester, the continuing resolution, and the debt ceiling. These are all opportunities to extract real spending cuts and entitlement reforms out of Washington. The U.S. House won’t be voting for any tax hikes, since (as Chairman Camp put it), the revenue level is now settled.
The House can also turn to fundamental tax reform. As it has done for the past two years, we expect the House to endorse comprehensive tax reform with the new permanent revenue baseline as part of the budget. Chairman Camp has indicated he will produce a revenue-neutral tax reform bill this year.
ATR looks forward to continuing to work with lawmakers to enact spending cuts and oppose tax hikes.