Skip to content

Is Allowing Tax Cuts to Expire the Largest Tax Increase in American History? The Question Revisited

3 min readBy: Gerald Prante

Many conservative talk show hosts and organizations, in addition to many Republican members of Congress, have been pushing the talking point that allowing the Bush taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. cuts to expire is the largest tax hike in history. Many have questioned this claim, including the Tax Foundation. Now Ryan Ellis, Tax Policy Director at Americans for Tax Reform (ATR), has put out a “defense” of this claim. Unfortunately, this defense suffers from many flaws itself.

First, Ellis admits that allowing the tax hikes to expire (assuming you classify that as a tax hike) would not be as big as one passed during World War II, hence his “outside of killing Hitler” disclaimer in his post. But Ellis is thereby admitting that it’s simply not the largest tax hike in American history. When you say “history,” that includes the 1940s. If you want to exclude WWII, say peacetime. Furthermore, the Treasury study that Ellis bases these claims off only goes back to the 1940s, which means that we don’t even know the relative size of tax hikes pre-1940, such as when the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. was initiated and ramped up. So in summary, we can say that you have to knock off about 170 years of American history in order to make Ellis’s claim only possibly defensible.

Second, Ellis classifies a compilation of “tax hikes” that are set to go into effect as one giant tax hike, including AMT expiration, the extenders bill, Making Work Pay, and even health care reform. There are two problems with this. First off, Ellis and ATR have a countdown clock on the ATR website (which is off by one hour by the way due to Daylight Savings Time) saying “countdown to the biggest tax increase in American history.” Well, virtually all of the health care tax hikes, which he counts in his tax hike amount, don’t kick in until 2013 (731 days from January 1, 2011). Therefore, this is inconsistent. Furthermore, summing up all the tax hikes and counting them as one big tax hike is inconsistent with the Treasury study cited earlier. If you want to count all the “tax hikes” occurring under Obama as one big tax hike, then shouldn’t you do the same for previous administrations?

Third, the Treasury study referenced wouldn’t even consider letting the tax cuts to expire to be a tax hike because there was no act of Congress. Has Ellis done a review of history to make sure that no tax cut has expired elsewhere in history that was not counted in this Treasury study (given that Ellis considers an expiring tax cut to be a tax hike)?

Furthermore, what’s interesting is that according to Ellis’s framework, Republicans are proposing fairly significant tax hikes too. That’s because his numbers include as a tax hike allowing Making Work Pay and other stimulus provisions to expire (which he labels “extenders”), many of which the Republican plan (the “Tax Hike Prevention Act of 2010”) wouldn’t extend. The Republican plan also calls for a “tax hike” on the estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. since they don’t favor full extension of 2010 estate tax law (i.e., no estate tax). According to Ellis’s math, ATR should be calling out all the Republicans who have signed onto the Tax Hike Prevention Act of 2010 as tax hikers and pledge violators. In fact, according to Ellis, Republicans are calling for a tax hike amount that rivals the Bush tax hike of 1990 and possibly the Clinton tax hike of 1993 (this includes some refundable credits, which Ellis counts as tax hikes given the CBO numbers he references).

Overall, there are legitimate arguments to be made against the Democratic position of allowing the tax cuts to expire, but this debate is filled with enough misinformation already from both sides.