A new study conducted by Ernst and Young proves conclusively that the President’s tax increase would be devastating to the economy and jobs.

The study finds that, if Congress misguidedly adopted President Obama’s plan to raise taxes on job creators by allowing the Bush-era tax policies to expire for incomes over $200,000 ($250,000 for married filers), the economy and jobs would suffer terribly:

  • Output in the long run would fall by 1.3 percent, or $200 billion, in today’s economy;
  • Employment in the long run would fall by 0.5 percent or, roughly 710,000 fewer jobs, in today’s economy;
  • Capital stock and investment in the long run would fall by 1.4 percent and 2.4 percent, respectively; and
  • Real after-tax wages would fall by 1.8 percent.

There are almost 13 million Americans out of work today. President Obama’s tax increase would needlessly add almost three-quarters of a million people to that already much too large number. Even those with jobs wouldn’t escape the pain of President Obama’s tax increase, as they would see their wages suffer.

The report validates Heritage’s argument that President Obama’s tax increase plan would badly hurt job creation because it would fall heaviest on the most successful businesses that employ workers and pay their taxes through the individual income tax (known as flow-through businesses). The study reports:

The concern over higher individual tax rates has also been a focus because of the prominent role played by flow-through businesses—S corporations, partnerships, limited liability companies, and sole proprietorships—in the US economy and that a large fraction of flow-through income is subject to the top two individual income tax rates. These businesses employ 54% of the private sector work force and pay 44% of federal business income taxes. The number of workers employed by large flow-through businesses is also significant: more than 20 million workers are employed by flow-through businesses with more than 100 employees. (Emphasis added.)

President Obama is fond of saying his tax increase wouldn’t impact 97 percent of small businesses. But those 97 percent of small businesses aren’t job creators. They range from people in their basements selling items on e-Bay to lawyers who practice out of their homes.

The businesses that would pay this tax increase are the businesses that hire millions of workers. Higher taxes on these vital job creators could force them to cut back on their existing workforce and would certainly cause them to slow hiring of new workers.

President Obama couches his argument for tax hikes on the rich in terms of fairness. But it would be anything but fair that millions of unemployed Americans desperate to go back to work would find it harder to land a job to provide for their families because of President Obama’s misguided class warfare.

There can be no doubt any more that President Obama’s Taxmageddon tax increase would devastate jobs. The Ernst and Young study should be the final nail in the coffin for his plan in Congress. It is time for Congress to do what’s right and stop all of Taxmageddon today.