Washington spends more than it takes in through tax revenues, resulting in a projected budget deficit of almost $1.35 trillion in 2010, or 9 percent of GDP, according to the Congressional Budget Office. Couldn't we get rid of the deficit by raising taxes?
No. A study we conducted at the Tax Policy Center found that Washington would have to raise taxes by almost 40 percent to reduce -- not eliminate, just reduce -- the deficit to 3 percent of our GDP, the 2015 goal the Obama administration set in its 2011 budget. That tax boost would mean the lowest income tax rate would jump from 10 to nearly 14 percent, and the top rate from 35 to 48 percent.
What if we raised taxes only on families with couples making more than $250,000 a year and on individuals making more than $200,000? The top two income tax rates would have to more than double, with the top rate hitting almost 77 percent, to get the deficit down to 3 percent of GDP. Such dramatic tax increases are politically untenable and still wouldn't come close to eliminating the deficit.
Saturday, April 10, 2010
Everybody likes to talk about sustainability these days, so maybe they should be focusing on the main, real, and certain sustainability problem of most nations: their rotten fiscal realities, in particular, the easily predictable coming US fiscal wreck. Here is Williams and Altshuler on the topic (HT Mankiw):