Get Ready for a 70% Marginal Tax Rate

[Conservative]

How do liberals not understand this?

Get Ready for a 70% Marginal Tax Rate

President Obama has been using the debt-ceiling debate and bipartisan calls for deficit reduction to demand higher taxes. With unemployment stuck at 9.2% and a vigorous economic "recovery" appearing more and more elusive, his timing couldn't be worse.

Two problems arise when marginal tax rates are raised. First, as college students learn in Econ 101, higher marginal rates cause real economic harm. The combined marginal rate from all taxes is a vital metric, since it heavily influences incentives in the economy—workers and employers, savers and investors base decisions on after-tax returns. Thus tax rates need to be kept as low as possible, on the broadest possible base, consistent with financing necessary government spending.

Second, as tax rates rise, the tax base shrinks and ultimately, as Art Laffer has long argued, tax rates can become so prohibitive that raising them further reduces revenue—not to mention damaging the economy. That is where U.S. tax rates are headed if we do not control spending soon

To cover the Congressional Budget Office projection of Mr. Obama's $841 billion deficit in 2016 requires a 31.7% increase in all income tax rates (and that's assuming the Social Security income cap is removed). This raises the top rate to 52.2% and brings the total combined marginal tax rate to 68.8%. Government, in short, would take over two-thirds of any incremental earnings.

Many Democrats demand no changes to Social Security and Medicare spending. But these programs are projected to run ever-growing deficits totaling tens of trillions of dollars in coming decades, primarily from rising real benefits per beneficiary. To cover these projected deficits would require continually higher income and payroll taxes for Social Security and Medicare on all taxpayers that would drive the combined marginal tax rate on labor income to more than 70% by 2035 and 80% by 2050

There is only one solution to this growth-destroying, confiscatory tax-rate future: Control spending growth, especially of entitlements. Meaningful tax reform—not with higher rates as Mr. Obama proposes, but with lower rates on a broader base of economic activity and people—can be an especially effective complement to spending control. But without increased spending discipline, even the best tax reforms are doomed to be undone.

 

[Wiseacre]

You know, if the Dems had a history of raising taxes without raising spending then they might have some credibility. But they don't, and in fact have a hostory of lying about cutting spending after promising to do so after taxes are raised. Even now with all their talk about reducing the deficits they stillhave not submitted any plan to dos o that can be scored by the CBO. Vague references to this or that and empty promises are all we get.

 

[iamwhatiseem]

You know, if the Dems had a history of raising taxes without raising spending then they might have some credibility. But they don't, and in fact have a hostory of lying about cutting spending after promising to do so after taxes are raised. Even now with all their talk about reducing the deficits they stillhave not submitted any plan to dos o that can be scored by the CBO. Vague references to this or that and empty promises are all we get.

Yes...but to be fair - the Republicans also have a history of hiding spending and also not following through on spending cuts - both over and over and over sign spending cuts that don't take affect till years later - and then quietly reverse the decision before the cut happens.

 

[Wiseacre]

You know, if the Dems had a history of raising taxes without raising spending then they might have some credibility. But they don't, and in fact have a hostory of lying about cutting spending after promising to do so after taxes are raised. Even now with all their talk about reducing the deficits they stillhave not submitted any plan to dos o that can be scored by the CBO. Vague references to this or that and empty promises are all we get.

Yes...but to be fair - the Republicans also have a history of hiding spending and also not following through on spending cuts - both over and over and over sign spending cuts that don't take affect till years later - and then quietly reverse the decision before the cut happens.

Don't know much about any history the GOP might have for that, I do know that the GOP Congress under Gingrich was primarily responsible for the balanced budget of the late 90s. There is no democratic Congress that has even come close in the past 30-40 years.

However, I would not dispute that the Repubs under Bush sucked at holding down spending, no question about that. I think both Reagan and Bush41 both tried to reduce spending but the dem-controlled Congress wouldn't go along. Both presidents raised taxes but didn't get the spending cuts they wanted.