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First, the income of the top 2% of taxpayers is typically more volatile than that of taxpayers lower down the income scale, so when the economy sours, so often do those high-end income streams. That means less revenue than expected will flow into federal coffers.
Second, even if that weren't true, there just aren't enough rich people to generate the kind of revenue needed to substantially reduce deficits.
To show the disparity, consider some recent calculations by the Congressional Budget Office. Raising all six income tax rates by 1 percentage point would yield an additional $480 billion over 10 years. By contrast, raising the top two rates by 1 percentage point would yield just $115 billion.
The Internal Revenue Service tracks the tax returns with the 400 highest adjusted gross incomes each year. The average income on those returns in 2007, the latest year for IRS data, was nearly $345 million. Their average federal income tax rate was 17 percent, down from 26 percent in 1992. Over the same period, the average federal income tax rate for all taxpayers declined to 9.3 percent from 9.9 percent. The top income tax rate is 35 percent, so how can people who make so much pay so little in taxes? The nation's tax laws are packed with breaks for people at every income level. There are breaks for having children, paying a mortgage, going to college, and even for paying other taxes. Plus, the top rate on capital gains is only 15 percent.
There are so many breaks that 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank. "It's the fact that we are using the tax code both to collect revenue, which is its primary purpose, and to deliver these spending benefits that we run into the situation where so many people are paying no taxes," said Roberton Williams, a senior fellow at the center, which generated the estimate of people who pay no income taxes. The sheer volume of credits, deductions and exemptions has both Democrats and Republicans calling for tax laws to be overhauled. House Republicans want to eliminate breaks to pay for lower overall rates, reducing the top tax rate from 35 percent to 25 percent. Republicans oppose raising taxes, but they argue that a more efficient tax code would increase economic activity, generating additional tax revenue.
President Barack Obama said last week he wants to do away with tax breaks to lower the rates and to reduce government borrowing. Obama's proposal would result in $1 trillion in tax increases over the next 12 years. Neither proposal included many details, putting off hard choices about which tax breaks to eliminate. In all, the tax code is filled with a total of $1.1 trillion in credits, deductions and exemptions, an average of about $8,000 per taxpayer, according to an analysis by the National Taxpayer Advocate, an independent watchdog within the IRS. More than half of the nation's tax revenue came from the top 10 percent of earners in 2007. More than 44 percent came from the top 5 percent. Still, the wealthy have access to much more lucrative tax breaks than people with lower incomes. Obama wants the wealthy to pay so "the amount of taxes you pay isn't determined by what kind of accountant you can afford."
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Talk in Washington about fiscal targets and deficit reduction has masked a fierce and decades-old ideological clash about taxing the rich that looks set to continue into next year’s presidential election. Last week, US President Barack Obama promised to cut the US deficit by US$4 trillion in 12 years. His Republican adversaries have promised marginally bigger cuts over 10 years. Onlookers might be forgiven for thinking Washington’s noxious partisan politics is not that noxious after all, but complete with political jabs and well worn sound bytes about “maxing-out the nation’s credit card,” a real ideological brawl is taking place.
It is a brawl about economics and in particular “trickle down economics” — the theory that lower taxes on the rich gives them more cash to spend in productive ways for the benefit of all. It is a theory that dominated politics in the 1980s, ebbed in the 1990s, was declared dead in the 2000s and is now being hotly contested as Americans try to figure out how to make their economy purr while shedding their vast debt burden. Obama is clearly not a proponent of the theory. A key part of his savings plan involves ending some tax breaks for the top 2 percent of earners. That translates into anyone earning more than US$250,000 a year, according to the White House.
Obama’s supporters argue tax breaks for the rich are not affordable given the country’s fiscal problems and the wealthy can afford to pay more, helping retain social programs and allowing for cuts elsewhere. Conversely Republican Representative Paul Ryan’s plan — which has now passed the House — includes about US$6 trillion in spending cuts, but would only reduce the deficit by just over US$4 trillion. The extra US$2 trillion in savings — along with some tax reforms — would be used to help pay for lower tax rates, including for the wealthy.
That policy, Ryan argues, helps create a government which “lives within its means” and “keeps taxes low so the economy can grow.” His plan echoes the thinking of former US president Ronald Reagan, who attributed his series of tax cuts to the boom that was seen in the 1980s, but critics say that boom was in fact just a rebound from an earlier recession and the cuts had little overall impact, except to explode the deficit. “Most Americans know trickle-down economics is a lie because almost nothing has trickled down,” former labor secretary Robert Reich wrote in a recent blog post.
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Missed the point, dint ya Ass-Hat?!Tax the fuckers and take back their bonuses.
If they want to leave, then good riddance.
Tax the fuckers and take back their bonuses.
If they want to leave, then good riddance.
