Taxing the Rich Won’t Cover Our Spending

by Sal on February 26, 2009

in Economy,Politics

Obama famously said throughout the campaign and again on Tuesday night that no one who makes less than $250,000 will get a tax increase.  At the same time he claims that the budget deficit will be cut in half by the end of his first term. The numbers, however, don’t add up.  Leaving aside the fact that tax revenues are dynamic rather than static for the sake of argument, even if one assumes a static model, the numbers still don’t add up.  From today’s Wall Street Journal:

But let’s not stop at a 42% top rate; as a thought experiment, let’s go all the way. A tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That’s less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable “dime” of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion.

The conclusion to be drawn is that tax cuts on the wealthy will not pay for what we have already spent, let alone what Obama wants to spend for health care, urban affairs, education, and other pet projects announced on Tuesday night.  Nor will superficial cuts.  Obama will be forced to raise taxes on the middle class unless he stands up and decides to slash many of the programs in Washington, including much of his porkulus bill.

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