Tyler Cowen suggests the GOP needs to be more open to tax increases.
I’m skeptical. Doing the math, you could impose a 100% marginal tax on income over $100K and not close the deficit.
Nor does it make much sense to seize more income below $100K, as the marginal propensity to spend is much higher for middle-class households, and thus we’d just be removing private spending from the economy and replacing it with less-efficient public spending.
So, we need to cut gov’t spending. Yes, we might raise another 1-2% of GDP with a large tax hike on the evil productive rich, and that probably wouldn’t be the end of the world, but there is really no reason our federal gov’t cannot function within the 18-20% of GDP it has always gotten since WW II.
Anyways, it’s never a good sign when a Communist country is complaining about your “bloated social welfare programs.”
UPDATE: Some people want to know how the numbers work on the “100% over $100K” claim above.
What some “fact check” sites have looked at is the total AGI of everyone with AGI over $100K, not the amount of their taxable income that was over $100K (to be fair, some politicians have also been imprecise in their language on this point). What Paul Ryan (who originally made the statement) is looking at is the effect of a 100% marginal tax rate on income over $100K, not seizing the entire income of anyone who makes $100K or more.
To get Ryan’s number, you can open the Excel sheet in the link above, scroll over to the taxable income column, subtract the number of returns * 100 for each row, and sum the result. You’ll get $1.582T.
Or, more easily, you can just scroll down to the “$100,000 or more” column, and just subtract the number of returns * 100 from the taxable income column and get the same result.
Now remember, that income is already being taxed at about 30% or so, combined federal and state — those are existing revenues. So your increased take from this new tax (even with the impossibly optimistic assumption that it wouldn’t affect the marginal propensity to produce, i.e. all those people will keep earning the same amount of money even though they know the gov’t is going to take everything over $100K) is only about .7 * 1.582 = $1.074T. Last forecast of the deficit I saw was $1.6T — and the supposedly huge cuts in the debt limit deal are only $22B, which is going to be less than the error in the estimate.
So no, you really can’t close the deficit this way.
UPDATE: Glenn finds a great new source of revenue. He’s good at that.
Comments
29 responses to “The Downgrade And Its Discontents”
I disagree with Tyler (and Megan) that the GOP will suffer regret and blame for settling for $2 trillion in “cuts” instead of $4 trillion in mostly cuts with some taxes. But I do agree that a real reduction plan would have to include some tax increases. To look at it one way, the debt problem we have now was almost entirely caused by new spending – but the “Bush tax cuts” (that now should have Obama’s name on it too) definitely contributed something. I would be Ok with a rollback to 2001-ish levels of spending AND taxes, if for nothing else then to stop liberals from talking about it. The economy seemed all right with those still historically low levels in the 90’s.
Additionally, while I would still personally prefer to slash spending enormously and not raise any taxes, those who share that ideology with me do not control all of Congress, and I think a 80-20 or so compromise still looks pretty good. At the very least, its silly to be opposed to ending poorly-targeted lobby-induced incentive-distorting tax credits like those for corporate jets and mortgages.
Just my two cents.
The world of sound money, balanced budgets, fair taxes, personal responsibility and freedom: Sorry, you can’t get there from here. Would you care for a stop at Serfdom?
It’s always just a little more tax isn’t it? Of course it’s tax someone else, never me. How is this for size, no more, none, nyet, nein, hindi, etc. It’s like putting an 8 year old kid to bed.
Tax, tax, tax, tax,
Tax all the rubes in the wildwood;
Tax all the rubes in the vale.
No sport is as dear to a Congress hood,
As taxing all the rubes in the dale.
This isn’t a comic strip. At a certain point Charlie Brown has to stop trying to kick the football.
The Democrats have played the tax hike now and spending cuts later game where only the tax cuts actually happen since at least the 1980s. Now they’re moving on to spending cuts later, maybe. It’s a minor improvement but still an improvement.
Let’s start with GR’s idea, a 50% surtax on revolving-door regulators! It’s a good start.
“Doing the math, you could impose a 100% marginal tax on income over $100K and not close the deficit.”
Can you show the math for this claim? The page at the link makes no such claim, and working myself from the numbers in Table 1, I don’t arrive at the same conclusion:
2011 deficit: $1.2 T (?)
Approx number of returns w/ AGI over $100K: 14 M
Total AGI for all those: $3.86 T
Let each person (i.e., return) keep $100 K: $140 B govt can’t touch
That leaves $3.72 T for govt to take
BUT govt is already collecting $721 B of that
That still leaves $2.99 T they could take
$2.99 T > $1.2 T
I’m sure I must be doing this wrong, but I’m not sure how. Am I using the wrong definition of “100% marginal tax?”. Is it because I’m looking at 2008 tax data instead of 2011? (But the link does not show data newer than 2008…)
Help me out here.
The government’s yearly deficit has gone up over a trillion dollars a year since 2007, and the clowns in Congress have trouble finding anything to cut http://pajamasmedia.com/instapundit/125679/ Give me a break.
kjackman-
For one, 14 million times 100K is 1.4 trillion, not 140 billion. So 2.46 T – 0.72 T = 1.74T. Well within striking distance, since the deficit is larger than 1.2 T and revenue is down significantly since 2008.
@Layton
Thanks! I figured I’d taken a wrong turn in there somewhere. That was it.
We’ve lost quite a few taxpayers since then, too, eroding total taxable income even more. And implementing such a plan would be impractical. Why would employers pay more than $100K to anyone at that point? It would be the same as sending that money directly to the govt. You just can’t extract that level of revenue from the tax base. The end.
This analysis and conclusion seems to blow the whole “not taxed enough” theory out of the water. It’s simple, easy to verify, and conclusive. Why aren’t we seeing it more in the opinion media and blogosphere?
Are these same tables available for the 2010 tax year?
@kjackman: So, is it your position that we tax everyone at 100% and then issue an allowance back for what each is allowed to expend, based on a needs criteria? Then, perhaps our budget would be balanced but most likely only for a very brief period of time before a deficit would emerge.
Of course, we could then take property from everyone and allow each to “rent” back when is appropriate for each. Except, would our economy then wither and be exceeded by China’s new economy mode? Heck, done well enough we could completely disappear from the face of the Earth, which might satisfy our current president briefly; it would be his version of nirvana!
Not too delightful for many of us yet if we accede, we could avoid the need for a highnoon faceoff. Nah, Bill Ayers would insist on his solution to the problem of us.
Any money raised by taxes will just be wasted. That’s all the SOBs know to do with it.
Ok, as long as we are throwing out crazy ideas for revenues that K Street and Congress would sabotage faster than a Flat Tax: here are three more.
1. A transaction tax of 10 basis points but not less than a penny for all financial transactions. Make a deposit or cash a check for $14.99 or less; a penny goes to the US Treasury. Borrow $10,000 cash and your starting principal balance is $10,010.00 and Uncle Sam gets the $10. Use a credit or debit card the price includes the .1% that will be sent to the government rather than the seller. Sale of stocks or bonds, deposits of cash, account transfers, money grams, wire transfers, bank fees, payments on credit cards and loan interest; every single monetary transaction done through any financial institution with no exceptions. (Including Charities and non-profits.) Yes, this could tax borrowed money twice; once when it is loaned and again when it is paid back (and if it didn’t kill front running and High Frequency Trading, it might go a long way toward replacing income tax.
2. A 4% national sales tax on internet sales. To be forwarded to the state indicated by the buyer’s billing address, regardless of where the seller operates. ( or to the US treasury if the buyer is outside of the US and the seller is inside the US. Anonymous prepaid cards would revert to the state in which they were originally sold)
3. No corporate or human entity allowed to have a tax burden of less than zero.
(You might be able to get this for Corporations but not ‘the poor’)
There are some whose smallest whispers are considered with great gravitas in the Halls of Power. I ain’t one of ’em.
@Doug Wright
What gave you the impression that I think such a tax would be a good idea? I’m just trying to expound on the point made in the article.
We are so screwed.
The Chinese are pulling out of the US credit market after having taken a serious bath here because of the federal sub-prime lending requirements. Their HSBC bank is liquidating US holdings by next year, at fire sale prices.
Soon, with the kleptocrats in power, we will sink to the level of Haiti.
If you’re going to raise taxes, the most effective way is to broaden the tax base.
Yeah I know that hits the middle class, but mathematically you get more money. Second, you can not have 50% of the population not paying taxes; it sets up a political quagmire.
They will expand their reach, function and money-grab until enough of our culture rejects “I’m my brother’s keeper”. So long as the morality that supports the welfare state is dominate, the welfare state will grind on.
egoist,
Uh. It is “you are my brother’s keeper.”
I hardly see the morality in that.
‘lanched:
http://pajamasmedia.com/instapundit/125734/
Why doesn’t BO simply announce a new 10% tax on all sales transactions in Europe?
Yeah, yeah, I know there’s absolutely no basis in the law for us to try to levy a tax on Europeans making transactions in Europe.
But there’s no basis in the law for a president to order all of us across the country to purchase his version of health insurance.
And there’s no basis in the law for the way he restructured the auto bailouts and screwed bondholders.
And there’s no basis in the law for the way he ignored a court order to resume issuing drilling permits in the Gulf.
And there’s no basis in the law for BO to ignore the requirements of the War Powers Act by failing to seek Congress’s approval for our new Libyan war after 60 days.
There was no basis in the the law for BO’s campaign to turn off all address-tracking and identity-tracking features of its donation-acceptance system, allowing hundreds of millions of dollars to be donated from overseas, and for individuals in the USA to slip past “maximum individual donation” limits.
So, really, how big of a step would this be? I say he should go for it.
@Will: EXCELLENT !!!!! “You can’t get there from here — can’t get to balanced budgets…… and freedom. Care to stop at Serfdom? ”
Will: That is MORE BRILLIANT than first meets the eye — I’d expand it to say we’ve been turning our country into Serfdom since the years of Wilson and FDR — and the Dems learned that big, ‘helping’ federal govt can actually ‘win’ votes with the idiots in the masses. So they’ve promised and delivered MORE federal govt in our country of “Serfdom”. And it’s become true that we can’t get out of Serfdom with MORE taxes — we must FIRST reduce the size of the federal beast, chop off some of its limbs — it is not an acceptable answer to ‘compromise’ with the Dems and deliver more revenue to the beast. Not acceptable. It will keep us in Serfdom forever if we do that, not to mention hurt our economy even more if we let the beast rob us from more of our hard-earned wages. ‘Serfdom’ doesn’t work. 47% of us knew that in 2008 — it’s imp that 4% more realize it before Nov next year!!
[…] DAVE PRICE: The Downgrade And Its Discontents. […]
[…] do we fix that form here? Dave over at Classical Values is skeptical about the value of the GOP being more open to tax increases. I’m breaking from […]
@kjackman,
The reason that the government can’t get to a higher marginal rate on the top 2% of earners is because many of us don’t have to work and believe we are already paying our “fair share” – $369.89 per day last year in my case. Being 66, I could reduce my cash flow to the government to a negative $77/day just by retiring and filing for social security. In fact, I consider it my patriotic duty to not pay another cent in taxes until there is a significant effort at cutting the waste. Just like my late alcoholic father couldn’t quit drinking until he hit bottom, our federal government will not come around until it hits bottom. If giving him another bottle a day would have cured him, I would gladly have done so for my father. But it wouldn’t have, and my sending $400, or $500 or $600 a day to Mr Obama is not going to cure him, either. Bottom line is: the folks on this thread should avoid making plans for my income because I can and will turn it to zero in a heartbeat.
Excuse me but how come you all are talking about taxes and not about what is/is not legitimate functions of the Fed Government? We’re in this mess with a huge, bloated, over-reaching Fed that strangles more through regulation than it does with actual legislation and we are controlled by oodles of faceless bureaucrats from an alphabet soup bowl of agencies.
Instead of trying to figure out how to get MORE taxes into the Government how about saying “this is the tax structure, now make the Fed Government live within it – starting with getting rid of anything the Feds should NOT be doing”
e.g. has public school education gotten better or worse since Jimmy Carter inflicted the Dept of Education on the US?
[…] the math, you could impose a 100% marginal tax on income over $100K and not close the deficit.*” cannot be […]
StvB, so many individuals, businesses, institutions, and organizations depend on Government and the political industry now, that curing the dependency disease is likely to kill the patient.
[…] rate of spending from the masterminds in Washington DC far outstrips what ever could have been paid in taxes. We must begin to be honest to ourselves, or live like mad […]
I think we should offer a simple deal on taxes. Once spending for any FY has gotten down to the traditional level of 19% of GDP, and we then still have a deficit, then and only then will I be willing to make “balanced” tax hikes to match spending cuts. But cut the spending first, to prove we can. Another offer, we can repeal special interest tax breaks, like the ethanol and alternative energy subsidies, provided they are revenue neutral, and offset by tax cuts on the upper brackets.
We need to keep tax hikes in reserve, as the last option, for when we have cut spending all we reasonably can, to 19% of GDP.