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It is a common political tactic to promise benefits to one group and claim that the rich will pay for it. Don't worry about the cost of these goodies, we'll just tax the rich to pay for it.
This attitude was prevalent in President's Obama's campaign and continues with his budget proposals. The general mantra has been that 95% of the population will not experience a tax increase and may get a tax reduction. Taxes are to increase on the upper 5%. Some talking heads on TV supporting the Obama administration have even claimed that the top 2% of income earners will pay for much of the health care and other social programs being proposed.
I set out to determine if taxing the rich to pay for everything is even possible.
I went to the IRS website and found data for 2006. This is the most recent data posted. 2006 was a year with a good economy and people were making money. I also obtained the Congressional Budget Office's estimates for the government's revenue and outlays under the President's budget proposals.
The CBO estimates massive budget deficits for 2009 and 2010. Much of this is due to the economic stimulus spending. So to be fair, I focused on estimates for 2011 and afterwards. The predicted budget deficits for 2011 to 2014 are between $650 billion and $970 billion. Note that this assumes a strong economy in those years. If the economy is weak, the deficits will be much greater.
In 2006, the top 1% in income paid a total $409 billion in income taxes. The top 5% paid $616 billion. Note that if these people paid double their tax payment, they would not be able to pay for the increased spending. I am aware of no one even talking about doubling the tax rates on the rich. Most are talking about increasing the top rate from 35% to 39%. That might increase revenue by $50 billion or so, which is nowhere near the $600 billion to $1 trillion needed.
So what is the lesson here? We are not going to be able to tax the rich to pay for our social benefits. We will either have to forgo the benefits or we will all experience significant increases in taxes---regardless of what the politicians and talking TV heads say.
