With a vote looming on an Illinois bill (HB 689) that would impose a graduated income tax with a top rate of 11.25 percent on pass-through businesses (previous coverage here and here), the Illinois Department of Revenue...
- The Tax Policy Blog
- Tax Increase on High Earners Is Not the Solution
Tax Increase on High Earners Is Not the Solution
Sluggish growth continues, unemployment remains above 8 percent, the debt recently topped $16 trillion, and the president’s solution – to increase taxes on the “wealthiest” Americans – isn’t a solution at all.
The president has laid claims of deficit reduction and “fairness” as reasons to increase taxes on earners over $250,000 and says anything but his proposed tax increase results in an undue burden on the middle class. But none of these claims are true. Instead, the result is just bad economic policy.
The proposed tax increase would fail to address the deficit seriously. According to the Joint Committee on Taxation, the proposed tax increase would raise only $68 billion by shifting the top tax bracket from the Bush era rate of 35 percent up to 39.6 percent (plus a few from the health care law). The government expects to spend $9.9 billion per day, or a projected $3.627 trillion for this year. Based on these numbers, the addition $68 billion from a tax increase would pay for 6.8 days of government operation. Considering the deficit is projected to reach $1.2 trillion (continuing the streak of four straight years of deficits above $1 trillion), those additional 6.8 days would still leave 114.4 days of government unfunded. In fact, even if we taxed everyone who earns over $1 million 100 percent of their income - every single penny - we would still have 49.6 days where Washington has to borrow to cover its spending.
In addition to the minimal impact the proposed tax increase has on the deficit, the tax increase on the wealthy fails to bring fairness to our tax system. The U.S. tax code currently ranks as the most progressive tax code out of all the OECD member countries. American tax filers in the top quintile currently pay 94 percent of the federal income tax revenues and it’s important to consider who these people are.
These filers are often who we as Americans aspire to be and shouldn’t be demonized based on their earned success. They are small business owners, husbands and wives, often two-earner couples who are well educated, and nearly half are over the age of 55.
A tax increase on this group of people wouldn’t just affect them, but would impact all of us through the businesses they run, the people they employ, and the products they produce and consume.
The economy is interconnected. The economy is global. So harming our businesses and our consumers with higher taxes will only diminish our ability to compete, and further defeat the purpose of paying down the debt.
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