December 12, 2012
How Much Taxation Would Fund Current Spending?
To best understand this spending aspect of the current budget negotiations in Washington, we must answer one crucial question: how much taxation on the top income-earners would be required to fully fund the present level of government spending? To do so, we must first make the unreasonable assumption that the rich will not respond to confiscatory tax rates and hide money from being taxed. This is unreasonable because no scheme of taxation since WW2 has been able to capture more than 21% of GDP. With current spending levels around 23% of GDP, history suggests that no level of taxation we have yet tried would actually fully fund our current level of spending. But if we indulged some "static scoring" and assumed a static tax base, what would a zero-deficit, soak-the-rich taxation scheme look like at current spending levels? For example, what would a 100% income tax on all those who earn over $10 million amount to? I'm not taking about a wimpy marginal rate, where...(Read Full Article)