Greetings to our constituents, fellow Floridians, and indeed all Americans, it is time to prepare our weekly update for dissemination.
As I hope you are aware, the Fiscal Year 2012 Actuaries and Trustees of Medicare and Social Security report has these two programs becoming insolvent by 2024 and 2033, respectively.
In our update last week we broke down the issue of Medicare for you to digest and disseminate to your friends. This week I want to elaborate on the situation surrounding the "fiscal cliff" upon which America finds itself.
Earlier this week the non-partisan Congressional Budget Office (CBO) reminded us of what lies ahead fiscally for America. The possibility of a full 1% growth in the already high unemployment rate come January 2013 is real.
We are currently operating under the Bush-Obama tax rates and six different tax brackets, which at this time are10%, 15%, 25%, 28%, 33%, and 35%. As of December 31, 2012 if no action is taken, these current tax brackets will jump to 15%, 15%, 28%, 31%, 36%, and 39.6%. A July 2012 study by the accounting firm Ernst and Young estimated this would result in nearly 710,000 jobs lost because of the net effect on close to two million small business owners.
Now, why is that so?
Because small business owners operate as sub-chapter S-Corporations and LLCs and use a personal income tax rate for their businesses. This means that an increase on those upper brackets is actually an increase on "job creators." When combined with rising costs from the Affordable Care Act and increased regulations, you are creating an adversarial environment for job growth in America -- hence why small businesses are not growing.
Furthermore, we are looking at an increase in capital gains taxes -- which will affect you if you are selling your home -- from 15% to 25%. We have been reducing the capital gains tax levels since the late 70s in order to spur investment in America.
Another tax set to increase is the dividend tax which rises from 15% to a top level of 43.4% -- and many of our seniors depend upon dividend income to survive.
This is the situation all of us Americans face come December 31, 2012. It doesn't make for a very Happy New Year -- does it?
The solution that President Barack Obama and the Senate Democrats have is to just raise the upper tax brackets for those with income levels of $200,000 (Single) and $250,000 (Married). Not only does that adversely affect small business owners, it yields additional tax revenue of only $85 billion per year. Given the insatiable spending appetite of the Federal Government, that $85 billion only funds the Federal Government for barely 10 days!
What an insidious political gimmick -- just like the "Buffet Rule" which was an even bigger joke in that it only yielded $40 billion in revenue over 10 years.
Another tax which I have not mentioned is the infamous "death tax," currently at a 35% rate but will increase to a 55% rate, as well as the minimum exemption reduced from $5 million to $1 million.
Lastly, we have the highest corporate/business tax rate in the WORLD, at 39.6%. We are basically telling the private sector that America is not open for business and forcing it out.
Next week we shall hit $16 trillion in debt, but when you factor in our unfunded mandates and liabilities, our debt is far higher. As the CBO stated this week, we are about to hit our fourth straight year of a trillion-dollar-plus deficit. The three previous were $1.42 trillion, $1.29 trillion, and $1.3 trillion, with this year, estimated to be $1.1 trillion.
Now, if all these tax increases were to aid in debt and deficit reduction, perhaps they might be carefully considered, but they are not. In President Barack Obama's Fiscal Year 2013 budget (which failed both Houses of the United States Congress without garnering one vote), there is $1.9 trillion in new taxes or as this Administration likes to say "revenues."
The nasty little secret is that Obama's budget NEVER balances and all you get is a 53% increase in the growth of Federal Government -- so much for a "balanced" approach.
Consider, at the same time in President Ronald Reagan's first term, we were at 7.1% GDP growth.
Under President Obama you ask? A whopping 1.5% GDP growth.
The Keynesian economic theory of tax and spend to resolve a fiscal crisis does not work. Continued government "stimulus" spending does not work either -- just ask Japan.
What does work?
Move from a progressive tax code system to a flat tax system and compress the six tax brackets into two: 25% and 10%. Then reduce the amount of personal deductions and exemptions to basically three: mortgage interest tax deduction, charitable contributions, and child tax credit.
Keep Capital Gains taxes at 15% or maybe even lower to 10% in order to spur on investment, innovation, ingenuity, and economic growth.
Eliminate dividends taxes and take the boot off our seniors.
Eliminate the Death Tax so we can pass on to future generations thriving businesses and capital for growth.
Allow a onetime repatriation of the trillions of dollars of capital offshore in order to ignite production, manufacturing, and job growth in America.
Reduce our corporate/business tax rate to somewhere between 22%-25% and eliminate the requisite exemptions to maintain the lower rate.
Just imagine a President taking the podium and announcing these necessary comprehensive tax reforms The certainty and predictability it would provide to our private sector would be immense, and one can only imagine the immediate change in our economic growth -- in a positive direction.
Avoiding the "fiscal cliff" we are facing is critical if we want to restore the dream of economic freedom and opportunity for all.
We can turn the American economic ship of state around and set sail toward a bright horizon filled with Fair Winds and Following Seas. It just takes leadership.
Steadfast and Loyal,