The U.S. would lose 710,000 jobs and economic output would fall by 1.3 percent, or $200 billion, if tax cuts for high earners are allowed to lapse, said a report prepared for the U.S. Chamber of Commerce and other supporters of the tax breaks.
The study by Ernst & Young LLP supports Republican efforts to extend all of the George W. Bush-era tax cuts set to expire at the end of the year. President Barack Obama called on Congress last week to pass a one-year extension of tax cuts for married couples making less than $250,000 a year while letting rates rise for higher earners.
“The higher tax rates will have significant adverse economic effects in the long run: lowering output, employment, investment, the capital stock and real after-tax wages when the resulting revenue is used to finance additional government spending,” wrote the report’s authors, Robert Carroll and Gerald Prante.
In addition to the Chamber of Commerce, the largest U.S. business lobby, the report was issued on behalf of the Independent Community Bankers of America, the National Federation of Independent Business and the S Corporation Association.
The report’s authors said they used an Ernst & Young economic model to examine the “long run” effects of an increase in the top tax rates. They didn’t say over what time period the job and economic losses would occur.
If Congress doesn’t act, all individual income tax rates would increase in 2013, as would rates on capital gains, dividends and estates. Republicans want to extend the current rates for a year and overhaul the tax code.
A Senate Democratic proposal would extend the tax cuts for income of individuals under $200,000 and married couples under $250,000. The top rates on dividends and capital gains would increase to 23.8 percent from 15 percent and the top rate on estates would go up to 45 percent from 35 percent.
Democrats say high-income taxpayers can afford to pay more to help reduce the budget deficit. Republicans say raising anyone’s taxes isn’t worth the economic harm they say would result.
The House plans to vote on extending the Bush-era tax cuts the week of July 30, and the Senate is scheduled to take up its tax plan by the end of the month.
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