Why we can't tax ourselves out of the deficit problem

Yesterday I was in the belly of the beast: Washington D.C.  At a lunch meeting, which included a number of liberal Democrats, the inevitable subject of the runaway spending and debt came up, particularly in light of Paul Ryan issuing a budget which would go a long way toward curing our financial ills.  While I and others extolled the positive economic effects of dramatically reducing government spending, those on the other side refused to come off the mantra of all we have to do is raise taxes on the rich and that will solve nearly all our problems.

Admittedly, all of those who were in that camp were, you guessed it, lifelong government bureaucrats.  I forcefully made the case that raising taxes on the rich would not generate anywhere near the revenue they thought, or even make a dent in the deficit, and would in fact end up reducing revenue and killing job creation.  The argument fell on deaf ears.  So, having done the research on the issue in the past based on numbers from their fellow bureaucrats in the IRS, I told them I would forward the details.

I am doing so through the American Thinker in a devious attempt to not only get their attention but to ruin their day by forcing them to see and hopefully read the articles and blog entries.

The data is contained on the following IRS site: Section: Tax Generated; subsection; Tax rate and size of Adjusted Gross Income (2008): Table 3.5 (The table is here

The tax year of 2008 was the last to date that the IRS has done this kind of analysis.  In 2008 the highest marginal tax rate of 35% applied to all AGI above $357,700.00.   In that year the total amount of AGI subject to the highest rate was $622.8 Billion.  The government collected in taxes $218.0 Billion (35%).

In 2011 the annual budget deficit will be nearly $1,665.0 Billion and in 2012: $1,100.0 Billion.  If the Liberal Democrats in league with the Socialists, the Unions and the Communists, succeed in raising the highest marginal rate, how much more would Washington D.C. receive, assuming no change in behavior and a general eagerness to pay more?

If the highest rate of 35% were raised by a factor of 20% to 42%, then the additional tax revenue would be $43.5 Billion, not much of a dent in $1,665.0 Billion.  So, let's raise the rate by a factor of 50% to 52.5%; the additional revenue would be $108.9 Billion.  Still nowhere near enough, so let's just tax it at a rate of 100%, bringing in an additional $404.8 Billion.  Unfortunately the country is still $1,260.0 Billion in the hole for the year.

Obviously by confiscating at 100% of all the income of the so-called rich above a predetermined level, there would never again be an incentive to earn above the highest tax rate threshold.  So where will the Left have to turn next: where the money is, the middle class.

The Left knows the gullible among us easily fall for centuries-old class warfare rhetoric that demonizes the wealthy, yet they persist in doing the unconscionable, as it keeps them in power despite the fact that it enflames passions and in some cases, violence.  

What the Democrats are doing is entirely based on a lie.  The United States cannot tax its way out of the present financial crisis, and from a cursory examination of Paul Ryan's proposal, his is the best plan yet presented and needs to be defended and promoted.
Yesterday I was in the belly of the beast: Washington D.C.  At a lunch meeting, which included a number of liberal Democrats, the inevitable subject of the runaway spending and debt came up, particularly in light of Paul Ryan issuing a budget which would go a long way toward curing our financial ills.  While I and others extolled the positive economic effects of dramatically reducing government spending, those on the other side refused to come off the mantra of all we have to do is raise taxes on the rich and that will solve nearly all our problems.

Admittedly, all of those who were in that camp were, you guessed it, lifelong government bureaucrats.  I forcefully made the case that raising taxes on the rich would not generate anywhere near the revenue they thought, or even make a dent in the deficit, and would in fact end up reducing revenue and killing job creation.  The argument fell on deaf ears.  So, having done the research on the issue in the past based on numbers from their fellow bureaucrats in the IRS, I told them I would forward the details.

I am doing so through the American Thinker in a devious attempt to not only get their attention but to ruin their day by forcing them to see and hopefully read the articles and blog entries.

The data is contained on the following IRS site: Section: Tax Generated; subsection; Tax rate and size of Adjusted Gross Income (2008): Table 3.5 (The table is here

The tax year of 2008 was the last to date that the IRS has done this kind of analysis.  In 2008 the highest marginal tax rate of 35% applied to all AGI above $357,700.00.   In that year the total amount of AGI subject to the highest rate was $622.8 Billion.  The government collected in taxes $218.0 Billion (35%).

In 2011 the annual budget deficit will be nearly $1,665.0 Billion and in 2012: $1,100.0 Billion.  If the Liberal Democrats in league with the Socialists, the Unions and the Communists, succeed in raising the highest marginal rate, how much more would Washington D.C. receive, assuming no change in behavior and a general eagerness to pay more?

If the highest rate of 35% were raised by a factor of 20% to 42%, then the additional tax revenue would be $43.5 Billion, not much of a dent in $1,665.0 Billion.  So, let's raise the rate by a factor of 50% to 52.5%; the additional revenue would be $108.9 Billion.  Still nowhere near enough, so let's just tax it at a rate of 100%, bringing in an additional $404.8 Billion.  Unfortunately the country is still $1,260.0 Billion in the hole for the year.

Obviously by confiscating at 100% of all the income of the so-called rich above a predetermined level, there would never again be an incentive to earn above the highest tax rate threshold.  So where will the Left have to turn next: where the money is, the middle class.

The Left knows the gullible among us easily fall for centuries-old class warfare rhetoric that demonizes the wealthy, yet they persist in doing the unconscionable, as it keeps them in power despite the fact that it enflames passions and in some cases, violence.  

What the Democrats are doing is entirely based on a lie.  The United States cannot tax its way out of the present financial crisis, and from a cursory examination of Paul Ryan's proposal, his is the best plan yet presented and needs to be defended and promoted.

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