To Close the Deficit Federal Income Tax Rates Would Have to Nearly Triple
October 22, 2009
Federal Spending So High That Even Prohibitive Income Tax Hikes Would Not Balance Budget
"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/publications/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.