The report found that all of the hikes combined would cause output to fall by 1.3 percent and capital stock and invetsments to fall by between 1.4 percent to 2.4 percent. It said employment “in the long run” would fall by half a percent, or by about 710,000 jobs. Wages would fall 1.8 percent.
“This report finds that these higher marginal tax rates result in a smaller economy, fewer jobs, less investment, and lower wages,” the report stated.
President Obama and his fellow Democrats have proposed extending the Bush tax cuts for everyone except those making more than $250,000 in annual income. Republicans advocate extending the tax cuts for everyone.
While the debate over taxes has been framed around wealthy Americans, the study said that flow-through businesses are also in the two top income brackets. The study said that flow-through companies employ half of the private sector work force and pay 44 percent of federal taxes.
The study said that if the tax cuts expire, the top tax rate will rise to 40.9 percent from 35 percent, while the top tax rate on dividends will rise to 44.7 percent from 15 percent and the rate for capital gains will rise to 24.7 percent from 15 percent.