WASHINGTON, Nov 8 (Reuters) - Allowing income tax rates to rise for wealthy Americans would not hurt U.S. economic growth much in 2013 if Congress extends expiring tax rates on lower income levels, the Congressional Budget Office said on Thursday.

In a report expected to fuel Democrats' post-election demands for higher taxes on the rich, the CBO said extending all of the Bush-era tax cuts, along with changes to the Alternative Minimum Tax, would boost U.S. gross domestic product growth by 1.5 percentage points, compared to letting these rates snap back to prior levels.

If the tax rates were extended only for individuals earning less than $200,000 and couples earnings less than $250,000, CBO said growth would rise by 1.25 percent -- just a quarter point less than extending all of the cuts.

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Raising Taxes on the Rich Isn't the Ultimate Budget Answer
November 9, 2012 RSS Feed Print


The "fiscal cliff" discussion is all part of a political chess game between the Republicans and Obama.

After a decisive electoral victory, President Barack Obama probably feels that his plan to raise taxes on the wealthy has been validated. He might want to reconsider that.

Obama's plan is to leave taxes where they are for every household earning less than $250,000, while allowing tax rates for higher earners to revert to Clinton-era levels, before the George W. Bush tax cuts of 2001 and 2003 lowered them. The top federal tax rate would go from 35 percent to 39.6 percent, and the second-highest rate would rise from 33 percent to 36 percent. Obama would also raise taxes on investment income, which mostly accrues to the wealthy.

Democrats sometimes make it sound like this is all it would take to steer away from the "fiscal cliff"—the big set of tax hikes and spending cuts due to go into effect beginning next year—and eliminate the gaping deficits that have left Washington deeply in debt. But it wouldn't even come close.

At most, raising taxes on the wealthy would generate about $70 billion per year in additional government revenue, according to an Ernst & Young report prepared for several lobbying groups opposed to tax hikes. The deficit this year is likely to be about $900 billion, and the total national debt is more than $16 trillion. So higher taxes on the wealthy would only cut the deficit by about 8 percent. And over 10 years, they'd only reduce the total national debt by about 7 percent. (That $70 billion per year would increase gradually over a decade, due to inflation and economic growth.)

Obama's basic argument is that you've got to start somewhere, and the wealthy should pay more before Washington even considers raising taxes on anybody else, or cutting spending in ways that would harm the needy or the middle class. Okay, maybe. But the problem with this approach is that it severely understates the depth of the problem, while perpetuating the fiction that Washington can get out of hock without inflicting any pain on the untouchable middle class.

The 2010 Simpson-Bowles report, which we're going to hear a lot more about in the coming weeks, laid out a more realistic plan for fixing the nation's finances. Here are a few of the recommendations: Raise the federal gasoline tax by 15 cents per gallon. Set caps on the amount of mortgage interest, healthcare benefits, childcare costs, charitable donations and retirement contributions that qualify for tax deductions. Kill most other tax credits. Raise the eligibility age for Medicare and Social Security, and reduce benefits for wealthier seniors. The plan would lower income tax rates and greatly simplify the tax code, but overall, the average taxpayer would fork over about $1,700 more each year to Uncle Sam. The tax burden would rise on every income group.

The Simpson-Bowles plan wouldn't even eliminate the national debt. It would simply cut it down to a manageable size and lower the risk of a crisis that jacks up U.S. borrowing costs, making the whole problem much worse.

The point isn't that raising taxes on the wealthy is a bad idea. It's that way more will be needed to make a meaningful dent in the problem. Obama surely realizes this—he's the one who established the Simpson-Bowles commission, after Congress voted down the idea of establishing its own panel to recommend ways to fix the debt. But so far, Obama is basically telling the majority of Americans that the problem can be solved without affecting them at all. It can't.

It's all part of a political chess game, of course. Raising taxes on the wealthy is Obama's opening move. Republicans, led by House Speaker John Boehner, will counter with a demand to cut government spending and reform entitlement programs—especially Medicare—that are gobbling up a large and growing share of taxpayer dollars. It's still early in the game, but a compromise negotiated over the next couple of months might include cutbacks in tax deductions for the wealthy (rather than outright increases in their tax rates), coupled with modest spending cuts. That might be enough to avert the fiscal cliff for the time being.

But it still wouldn't make much of a dent in the overall national debt. The way to tell when Washington finally gets serious about that is to watch your own tax bill. The national debt won't go down until that starts to go up.

Quoted from joebxr

Not sure your graph really tells much, but even at that, it ends in 2005....LONG TIME AGO!!!

Ok, this one goes to 2010.

If historically taxing the rich doesn't bring in much more than 19% of GDP, what would be the common sense solution to bring in more revenue?  INCREASE THE GDP.

Quoted from CICERO

If historically taxing the rich doesn't bring in much more than 19% of GDP, what would be the common sense solution to bring in more revenue?  INCREASE THE GDP.

As I posted above you:

WASHINGTON, Nov 8 (Reuters) - Allowing income tax rates to rise for wealthy Americans would not hurt U.S. economic growth much in 2013 if Congress extends expiring tax rates on lower income levels, the Congressional Budget Office said on Thursday.

In a report expected to fuel Democrats' post-election demands for higher taxes on the rich, the CBO said extending all of the Bush-era tax cuts, along with changes to the Alternative Minimum Tax, would boost U.S. gross domestic product growth by 1.5 percentage points, compared to letting these rates snap back to prior levels.

If the tax rates were extended only for individuals earning less than $200,000 and couples earnings less than $250,000, CBO said growth would rise by 1.25 percent -- just a quarter point less than extending all of the cuts.

Quoted Text

But it still wouldn't make much of a dent in the overall national debt. The way to tell when Washington finally gets serious about that is to watch your own tax bill. The national debt won't go down until that starts to go up.

I think they should tax all Pensions/Social Security payments at a rate of 50% for everybody in the boomer generation that created this mess.  That would be the ethical thing to do.  The left talks about fair share and collectivism - fair share should be measured by identifying those in the collective that created this mess and tax them at a higher rate.

Quoted from 2511

Much like property owners who don't pay their delinquent property tax bills. Right Paul? You paid yours yet?

DV, you wouldn't know a delinquent tax from a paid tax from an exempt from tax----unless we intelligent people told you.   Yes, and have you found any information yet to prove your statement that county taxes are lower now than 50 years ago---obviously not, and you don't even know where to begin trying to find out that information as you don't even respond with a "give me a few days and I'll have the answer."    By the way, post as yourself.

Quoted from CICERO

I think they should tax all Pensions/Social Security payments at a rate of 50% for everybody in the boomer generation that created this mess.  That would be the ethical thing to do.  The left talks about fair share and collectivism - fair share should be measured by identifying those in the collective that created this mess and tax them at a higher rate.

Now that's a real solution.....are you drinking again????? Why do you think your generation is held harmless????

Over Two-Thirds Of Corporations Pay No Federal Corporate Income Tax

At a time when the federal government is starved for cash -- and facing layoffs and cuts in services across the board -- more and more corporations are sidestepping their traditional tax rate and keeping millions of dollars for themselves.

The number of U.S. corporations structuring their businesses in such a way that they can avoid higher taxes has skyrocketed in the past quarter century, The Wall Street Journal reports.

In 1986, about 24 percent of corporations were what's known as nontaxable businesses -- meaning the companies themselves pay no federal income taxes -- instead passing on the earnings to individual investors to pay taxes on. By 2008, these businesses accounted for about 69 percent of all corporations, a designation that can save companies hundreds of millions of dollars in a single year

Advocates for the business community have expressed frustration with the country's 35 percent corporate income tax rate, calling it unreasonably high. In practice, though, it's common for big businesses to pay much less, thanks to a cornucopia of tax-code loopholes and exemptions won by lobbyists.

The issue of corporate tax participation has become especially pressing in recent years, as the country struggles to manage its ballooning deficits. Corporate taxes for non-financial companies have fallen more than 13 percent since 2007, according to Bloomberg. At the same time, the national debt grew to $15.23 trillion from $9.13 trillion -- a number larger than the economy itself.

According to a recent analysis of nearly 300 Fortune 500 companies by the Citizens for Tax Justice, the average company was paying just 18.3 percent in taxes -- a little more than half the official rate. And by using techniques like industry subsidies, stock option packages, and moving assets overseas where they can't be taxed, 30 companies mentioned in the report -- including Wells Fargo, Verizon, Boeing and General Electric -- didn't pay a cent in federal taxes in 2008, 2009 or 2010, the report found.

The phenomenon affects state income taxes as well as federal. Last month, another study from the Center for Tax Justice found that corporate tax avoidance had cost states a combined $42.7 billion between 2008 and 2010 -- a period when budget shortfalls forced states to cut spending for health care, public schools and care for the elderly and disabled.

Until government almighty decides to change their useless tax codes businesses will continue to use every legal loophole available to them.

Until a generation of people stop wanting other people's money as if they are entitled to it, the tax code will be written by lobbyist to benefit their clients.  

Quoted from CICERO

Until a generation of people stop wanting other people's money as if they are entitled to it, the tax code will be written by lobbyist to benefit their clients.  

Do you consider Social Security to be entitled people wanting other people's money?

Quoted Text

The Simpson-Bowles plan wouldn't even eliminate the national debt. It would simply cut it down to a manageable size and lower the risk of a crisis that jacks up U.S. borrowing costs, making the whole problem much worse.

there's a big fat red herring......

Quoted from Libertarian4life

Do you consider Social Security to be entitled people wanting other people's money?

Yeah...You are the one that posted people earning over $110k should contribute more.   If they contribute more then they should also receive more in benefits, which would do nothing toward solving insolvency.  They would need to contribute more and receive less or the same.

The system was mismanaged, and now people have their eyes on whoever was a little successful to now pick up the tab.  

A coworker of mine from England once told me (I paraphrase)- "I did everything right, I never mortgaged a house and waited until I was 40 when I saved enough to purchase one outright, I bought my car outright, and I have no credit card debt.  I never bought something I couldn't pay for.  Yet unfortunately I am still going to lose all the money I earned to pay for all those that lived way above their mean their entire lives."

Quoted from joebxr

Now that's a real solution.....are you drinking again????? Why do you think your generation is held harmless????

Well, since we can pick and choose who pays and who doesn't, I figured I'd throw my suggestion out there.  If we are going to pick and choose who to punish with the tax code, I say let's not punish the 20 something year olds for the mismanagement by politicians they couldn't even vote for.  They are being punished with a lower standard of living because of the sins of their parents.

Quoted from CICERO

Well, since we can pick and choose who pays and who doesn't, I figured I'd throw my suggestion out there.  If we are going to pick and choose who to punish with the tax code, I say let's not punish the 20 something year olds for the mismanagement by politicians they couldn't even vote for.  They are being punished with a lower standard of living because of the sins of their parents.

So the fact the baby boomers didn't have an option when we wre 20, how does that balance anything. Maybe the cause of our problems began slowly a long time ago, before the baby boomers.

As for your friend in England, check out their tax strutures and benfits, and then look at their 7 version of retirement options/structure.  Might make you thin our system is not so bad afterall.