Mr. Kyl, former Republican senator from Arizona, is a visiting scholar at the American Enterprise Institute and senior counsel at Covington & Burling LLP. Mr. Moore is chief economist at the Heritage Foundation.
The ripple effect of the president’s tax hikes is swamping take-home pay.
The curse of the U.S. economy today is the downward trend in “take-home pay.” This is the most crucial economic indicator for most Americans, but when President Obama said in a recent speech at Northwestern that nearly every economic measure shows improvement from five years ago, he conspicuously left this one out.
Most workers’ pay has not kept up with inflation for at least six years. Even as hiring picked up over the past year, wages and salaries have inched up by 2%, barely ahead of inflation. This probably explains why half of Americans say the recession never ended. They are experiencing what Federal Reserve Chair Janet Yellen last week described as “stagnant living standards for the majority.”
Why aren’t wages rising? There are several reasons, including that many jobs today don’t pay as well as the ones lost during the recession. ObamaCare has made health insurance more expensive for businesses—as the nation’s biggest employer, Wal-Mart , recently reported—and that takes a bite out of take-home pay. Yet one factor is often overlooked: the tax increase on “the rich” at the beginning of 2013.
How could higher taxes on the top 2% or 3% hurt the middle class? Part of the answer is that when upper-income Americans spend their money on vacations or cars, they are taxed only once, after they earn it. But if they put their money to work by, for example, building out a family business, they got socked a second time by higher investment taxes. And this discourages the investments that grow the economy.
Although the Obama administration argues otherwise, these tax hikes were not minor. The tax rate on capital gains for high-income earners shot up to 23.8%—20% plus the 3.8% ObamaCare investment surtax. Ditto for the tax on dividends. So taxes on business investment rose by nearly 60% in 2013 and are nearly 20% higher than in the Clinton years.