Over at AEI, Mark Perry put together a chart that got a lot of attention yesterday. The chart shows that for the first time ever, Americans are spending more money at restaurants and bars than they spend at grocery...
- To Close the Deficit, Federal Income Tax Rates Would Have...
To Close the Deficit, Federal Income Tax Rates Would Have to Nearly Triple
Federal Spending So High That Even Prohibitive Income Tax Hikes Would Not Balance Budget
Washington, DC, October 22, 2009 -- Federal income tax rates would have to be nearly tripled across the income spectrum if Congress were to close the deficit in fiscal year 2010, according to a new report from the nonpartisan Tax Foundation. Instead of taxing joint filers with rates ranging from 10 percent to 35 percent, tax rates would have to start at 27.2 percent and reach up to 95.2 percent.
"Federal government spending levels are so high that even if policymakers were willing to stop debt-financing government services, the federal tax system in its current form wouldn't be able to raise that much," said Tax Foundation Director of Policy and Communications Bill Ahern, who authored the report, "Can Income Tax Hikes Close the Deficit?" The paper is No. 197 in the Tax Foundation Fiscal Fact series and is available online at http://www.taxfoundation.org/legacy/show/25415.html.
"If high-income people had to pay a federal tax rate over 90 percent, plus state and local income taxes and other taxes, total tax rates would be well over 100 percent for many households," he said.
If the federal government were determined to close the 2010 deficit, even resorting to higher income tax rates across the income spectrum, the average tax payment of someone making between $75,000 and $100,000 would jump from $7,055 to $20,515. Taxpayers with AGIs over $1 million would see their tax bills climb from $800,000 to almost $2 million.
Even in 2012, when the President's Budget projects a lower deficit, tax rates would still be need to be prohibitively high in order to balance the budget: nearly double, with rates ranging from 18.7 percent to 74.1 percent.
"Economists debate the extent to which modest tax rate increases persuade workers to work less and entrepreneurs to risk less, but there can be little doubt that the high tax rates necessary to balance the budget in the next several years would discourage all income-producing endeavors," Ahern said.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
Tax Foundation Fiscal Fact No. 197, "Can Income Tax Hikes Close the Deficit?" is available online at http://www.taxfoundation.org/legacy/show/25415.html.
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