Sunday, April 17, 2011

Rhetorically, Democrats finger familiar villains to explain and cure the deficits. These don't withstand scrutiny. One is: the Bush tax cuts for the rich. The trouble is that Obama's budget already assumes higher rates (39.6%) on incomes exceeding $200,000 (individuals) and $250,000 (couples).

Suppose we get tougher on the very rich. One proposal would raise rates to 45% on incomes from $1 million to $10million, with rates increasing to 49% on incomes of $1 billion. Over a decade, tax revenues would grow about $900 billion, says the advocacy group Citizens for Tax Justice. Assuming the money materialized, it's a lot — but only a 10th of the decade's deficits.

Another liberal villain: the wars in Iraq and Afghanistan. They've cost $1.26 trillion from 2001 to 2011, reckons the CBO. Again, a lot of money. But it, too, pales next to all spending ($29.8 trillion) or deficits ($6.2 trillion) over the same period. Here, too, Obama's budget assumes big cuts.


Baxter said...

Good post, Doc. One of your more thoughtful on the topic.

We are currently taking in a little over 15%/GDP in revenues. That will go up as the payroll tax goes back up 2% next year and all the Bush tax cuts expire at the end of 2012. Frankly, I expect wholesale changes to the tax code this year or early next, none of which will call for top rates in the high 30%'s, much less the 40%'s.

I expect Simpson/Bowles will be the blueprint, which takes us to 21%/GDP revenues while bringing top tax rates - and corporate taxes - into the 25% range. Almost all deductions are eliminated, and capital gains/dividends would no longer receive preferential treatment.

Spending comes down 3X more than tax rates go up. Medicare & SS are addressed while remaining as guarantees. Discretionary spending - including defense - come down. Pay/Go is back in place on steroids.

Can we get this done? I sure hope so. The key question: what is the GOP's top priority? Low taxes rates? Beating Obama? If so - no deal. If their highest priority is structurally reducing the deficit, we will have a deal. If they really believe all they say about our precarious finances, it is a no brainer. Then, the Tea Partiers, Boehner, Reid, McConnell and Obama can all legitimately take credit.

Lets keep our fingers crossed.

terry said...

Just one big juicy bone to pick with you Jim. These Bush tax cuts were sold to us the little people to pick up the economy, stimulate business? How they doing? I am not for 45% tax on the rich by the way, just back to the Clinton rate would be fine. As for your statement 1.26 trillion for the war of choice ( I hope not Daddy revenge:just a cheap shot at you birthers) you know Jim as one person said "A trillion here and and a trillion there, pretty soon it adds up to real money"

Baxter said...

I agree with Terry - I think Clinton tax rates demonstrated the effectiveness of a 39.6% top end. I do not support going over that number (as has been proposed) as it would be counter-productive. We'd possibly pass the point of diminishing returns.

I am comfortable raising the AMT and eliminating deductions, so that the effective tax rate on the top increases.

It was Everett Dirkson that originally talked about a billion here and a billion there adding up to real money. Today, we get to trade in the B for a T.