The fight over whether to let tax cuts enacted under George W. Bush expire at the end of 2010 is being waged in terms of political sloganeering — “taxes are an outrage” versus “the rich must pay.”
Here’s the uncomfortable point few want to face: even if the rich do get hit with a federal income tax increase, the middle class must bear much of the cost of fixing America’s budget-deficit mess. Taxes should rise, not just for the rich, but for most Americans.
The current fiscal year federal deficit is running at $1.4 trillion; the outlook is for year after year of very high deficits, and this is before the Baby Boomers retire. Adjusting to today’s dollars, the United States has incurred more debt in the last decade then during the entire combined previous 211 years of the republic’s existence. Unless economic growth rises to about five percent per year and stays there for some time — which is possible, but not likely — tax increases and benefit cuts are the only ways to address record debt.
We’d all like to think that soaking the rich solves the problem, but it doesn’t. Bush’s tax cuts, due to expire on December 31, cut the federal income tax top rate to 36 percent from 40 percent. Suppose the top rate is allowed to return to 40 percent, as your columnist thinks it should. Other things being equal, that would raise federal revenues about $65 billion per annum. While we’re at it, let’s shave 10 percent off the $549 billion fiscal 2011 defense budget request, saving another $55 billion.
Now we’ve taken the only steps that are politically palatable — taxed the rich, cut the Pentagon. That reduces the deficit for fiscal 2011 by about $120 billion, of a projected $1.1 trillion deficit. The deficit would still be about a trillion dollars – just five years ago, this would have been considered an unthinkable level of debt.