Deficit and Tax Policy

May 24, 2011 By Adam Strathmore

Some people do have more to give – problem is they don’t have enough

With the White House and Republicans on another collision course over the federal budget—this time due to the looming expiration of the country’s authorization to borrow—there is renewed attention on taxing the rich to solve our fiscal dilemma.  President Obama, in his April 13 speech outlining his plan to reduce the deficit, urged eliminating the Bush tax cuts for people making more than $200,000. Democrats are quick to point out that federal taxes in 2011 will be 14.4 percent of the gross domestic product—the lowest since 1950. http://bit.ly/gbVTg6 Many on the left are looking forward to the expiration of the Bush tax cuts at the end of 2012 as an opportunity to get a “fairer” amount of taxes the rich and help lower the deficit at the same time.

Trouble is, raising taxes on the wealthy won’t solve the problem. The top 1 percent of the nation’s earners took home 23% of the country’s gross income in 2007, but paid nearly 40% of federal income taxes. Placing so much responsibility for closing the deficit on such a narrow base is bound to fail. In fact, if the government were to rely on tax increases alone to wipe out the deficit, income taxes would have to go up by a whopping 144%, according to the Heritage Foundation. http://bit.ly/gKKkFR Even the centrist Tax Policy Center, which studied the impact of raising taxes to close the deficit, concluded that raising taxes on the wealthy alone or on everyone—or even eliminating tax deductions—would not significantly decrease the deficit. http://bit.ly/jIDJgp

The answer is actually much simpler. If the federal government is going to reduce the deficit, it’s going to have to start spending less.

• Taxes

• Debt

• Bush Tax Cuts

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