What Are Economists Really Saying About Tax Rate Increases?

On Friday, Representative Pete Sessions (R–TX) and House Speaker John Boehner (R–OH) ran afoul of Glenn Kessler’s “Fact Checker” blog regarding a study of President Obama’s proposed tax increase. Before deciding on a tax change, policymakers are wise to look at the economic impacts of the change.

Two Studies

In fact, two studies released this year predict that raising tax rates on high-income families and small businesses would hurt the economy. The tax rate increase was proposed by President Obama and involves raising the top two marginal tax rates to 39.6 percent and 36 percent, respectively.

The first of the two studies was performed by Ernst and Young, a large consultancy, for a group of clients representing small businesses. They used Ernst and Young’s proprietary macroeconomic model to evaluate the long-run economic cost of the proposed tax increase, along with tax increases on dividends and capital gains.

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