Saturday, February 20, 2010

Tax Policy Center: We can't just tax the rich to balance the budget

The Urban-Brookings Tax Policy Center reports that barring major changes to the tax structure or major spending cuts, it will not be feasible to balance the budget solely by raising taxes on Americans making more than $250,000.

If you wanted to limit the deficit to 3% of Gross Domestic Product (which is the sum of all that the nation produces) and if you wanted to raise only the top two tax brackets, you'd have to raise rates to72.4% and 76.8% respectively, from 33% and 35%. At this level, there would be considerable evasion of taxes, both through legal and questionable means. If you raised only the top three brackets, you would need to raise them to 52.6% (from 28%), 61.9% and 65.7%.

If you wanted to raise taxes on all Americans, you'd still need to raise the top rate to 52.1%. Each bracket would need to rise by 50% or so. All these are assuming the Administration's proposed tax policy, which includes letting all the Bush tax cuts expire. This would mean raising taxes on middle and working-class families.

First, this points to how critical health reform is. None of the Republican ideas aside from radically cutting government spending on Medicare and Medicaid do anything to bring costs down. The Democrats' proposals at least get us part of the way there.

Second, this points to the fact that we do need to consider other sources of revenue, such as a value-added tax, cap and trade revenues, or a carbon tax.

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