My colleague Kevin D. Williamson has a piece today about how hard it would be to close the $1.1 trillion budget gap by taxing “the rich.” I spent some time this weekend going through more detailed IRS data, and they support his conclusion.
Liberals believe, more or less, that once someone’s income reaches the “rich” threshold, they have little right to keep any additional dollars they make. Starting with that assumption, I set out to find how much “extra” money people really have. You can see my results here.
The best numbers I could find came from IRS returns in 2008 (Excel spreadsheet). Unfortunately, the cutoff the IRS uses is $200,000 rather than $250,000, which is the level below which Obama promised no tax hikes. But if anything, counting more taxpayers as “rich” — and thus making more money available for government plundering — will bias the results against Kevin’s argument.
The first question is: How much do these folks make in total? The answer is about $2.5 trillion.
If we wanted, we could stop here: You’d need to grab almost half that to finance the deficits Obama’s talking about, and for many of these taxpayers, the other half is already taken in federal and local taxes. No one works for free. But even if we can’t completely eliminate the deficit, maybe we can mitigate it substantially. So it’s worth going a little farther.
First of all, not all of that money is “extra.” I assume that when Obama talked about raising taxes on the rich, he didn’t mean he’d tax people who made $250,000 so much that they ended up with less than people who’d made $200,000. So, in this analysis, not only is he limited to taxing people who make over $200,000, but he’s limited to taxing the amounts that exceed $200,000. Of the aforementioned $2.5 trillion, only about $1.6 trillion is left after we subtract every rich filer’s first $200,000.
And of course, the federal government can’t take money it’s already taken, so we need to factor in taxes. Because we counted out the first $200,000 each person earned, we also have to count out the federal taxes on that income — about $50,000 per person. When we calculate the taxes paid beyond that, and subtract that number from the $1.6 trillion above, we end up with less than $1.3 trillion.
And then we have to knock off state and local taxes, which probably average 5 to 10 percent. All told, we’re left with about a trillion dollars — dollars that belong to people who already pay high taxes and are good at hiding money when taxes go higher.
Bottom line: If we can’t raise taxes on anyone who’s not rich, the income tax can’t be of much help in increasing revenue.
Williamson's argument seems all over the place. We can't tax the really rich because they will find ways to avoid them. Taxing all the rich and the less rich won't clear up the deficit immediately. They rich have 2.5 trillion but it is really not all that much. If we tax them there is only about a trillion dollars we can come up with. Blah,blah,blah. The dems and repubs are quibbling over tiny bits of discretionary spending that aren't going to make a dent. Ryan's suggestions are going to put repubs behind the eightball so they will not be taken seriously. If we are not going to cut spending in a real way then we need to raise revenue and those who benefit the most should bear a bigger burden ( at least those who shouldn't already be in jail)
Reply to this commentLinkReport AbuseAll high income people do not necessarily possess a high net worth. All wealthy people do not necessarily possess high annual incomes. A lot of people now falling into the Obama high income brackets may also be unemployed homeowners or real estate investors whose modified mortgage or other debt created a 1099 with taxable income for a forgiven debt.
Reply to this commentLinkReport Abusespider43:
Reply to this commentLinkReport AbuseIt is not every day that you see someone offer their own inability to FOLLOW an argument as a refutation thereof. Impressive. "Blah,blah,blah," indeed.
reheiler: I apologize, my sarcasm about Williamson's arguments was too obtuse. I will try to comment more literally for NRO readers in the future. Williamson's mental gymnastics about not taxing the rich still are incomprehensible.
Reply to this commentLinkReport AbuseSpider43 - You have used the word "obtuse," so you're obviously a really smart person, but if you don't mind a couple of quick pointers to make your trolling a little better:
1 - I think the problem isn't that your "sarcasm" is "obtuse," (Kudos for that word. Really.)but the fact that you seem to have conflated two different posts about "they (sic) rich" from two different authors. Kevin Williamson wrote the original post. The post on which you are trolling is by Robert VerBruggen. It's ok. I know conservatives probably all sound alike to you. "Hayek! Economic freedom! Supply-side!" blah blah blah, right? (BTW - You should probably look up the definition of sarcasm before trolling. I've reread your comments again and don't see much sarcasm, just a straightforward misstatement of the original argument and then some kind of non sequitur about people going to jail. I lost you there. Sorry.)
2 - Speaking of "blah, blah, blah," good, thorough trolling should probably NOT include that phrase to elide the crux of an argument you're trying to flame. That's just lazy. You can do better. I'd suggest using a Latin phrase or two next time. Try "ipso facto." It sounds really smart.
3 - When concluding an argument about why we "should" do something, you should think about including evidence as to why something should be done. It might be clear to you that "those who benefit the most should bear the bigger burden" as they ipso facto derive the largest benefit from the government (see how great that phrase is?), but without any proof it just comes across as kind of mindless Marxian claptrap. See how I actually inserted a plausible reason as to why we should do as you say? Don't make your reader do your work. Or is that more of your obtuseness at play?
Keep up the effort. You'll make a fine troll soon.
Reply to this commentLinkReport AbuseThe report is optimistic about the capacity to close the deficit by confiscating money from the rich. It ignores the devastation to the economy that would result.
Reply to this commentLinkReport Abusespider43- "those who benefit the most should bear a bigger burden"-Don't those that pay the most in taxes take the least from the government? And those that take the most from government pay the least in taxes? I know, I know, the "benefit" you are talking about is the hard earned money these fat cats made by being lazy and contributing nothing to the nation's economy (real sarcasm here).
Reply to this commentLinkReport Abusejameswester: Insults do not comprise an argument.The arguments presented by Williamson and VerBruggen provide an idea of how much money could come from taxing the rich; they just think it won't cover the deficit by itself. When the top 400 families own as much wealth as the bottom 155 million citizens, I would suggest that they have benefitted from laws and lack of regulation and poor oversight from the SEC, etc. The repubs are just as afraid of tackling Social Security and Medicare and Defense as the dems. So short of cutting tiny bits of discretionary spending we need to raise more revenue. Seems simple enough. "Mindless Marxian claptrap" isn't much of a rejoinder--yours in trolling---spider43
Reply to this commentLinkReport AbuseState and local taxes between 5 and 10% of income? I wish I was so lucky!
I live in California. Income tax rate for incomes above $47K...9.55%. State sales tax...8.25%. My county adds another .5%. Some things, like food, don't have a sales tax, but other things, like gasoline, have additional excise taxes. So I'll call it a wash and assume everything I buy comes with an approximate 8.75% local sales tax. I'll assume I spend 1/4 of what I earn each year on sales taxed items.
Car registration gets a lot of publicity, but it's only a few hundred bucks. The biggie for "the rich" is property tax. Like many of us "rich," I own two houses. I live in one, rent out the other. I pay property tax on both. The tax on the rental comes to around $3,000. The tax on the house I live in (having just purchased it, it's basis is much higher) is about $13,000. Property tax amounts to about another 5% of my annual income.
Then there is California SDI, 1.2% up to about 93K in income. That extra SDI roughly covers the lower income tax rate below the first $47K.
I'll just ignore all those utility taxes and fees.
So I pay approximately 17% of my income for state and local taxes.
For California liberals, that's not enough, obviously.
Reply to this commentLinkReport AbuseJameswester, to quote the great liberal mind of the twenty-first century, you must be a 'WINNER!'
Reply to this commentLinkReport AbuseReally. Charlie Sheen is the poster child of the left.
Q: How do we balance the budget and NOT have a deficit?
A: Cut spending, raise taxes. That's the only foreseeable way to fix this problem. Not taxing is not an option. Where should we cut? Here's the data, check this link. Hint: Defense spending seems to have a pretty big piece of the pie.
External Link
Reply to this commentLinkReport AbuseMy answer would be cut spending, grow the economy which would probably be facilitated best by cutting taxes (or better yet simplify the tax code). As for defense spending it should not be off the table. The abject failure of the stimulus to jump start the economy shows the failure of Keynesian economics.
Reply to this commentLinkReport AbuseEconomist Martin Armstrong says taxing the so called rich - which now includes households earning more than 250k - would not solve the deficit problem for even a year and it would just drive capital offshore even more.
Direct income tax was forbidden by the founding fathers and came into effect in 1913 which was influenced by Karl Marx. Armstrong says the problem is the income tax, it should be abolished, and politicians who have been encouraged to borrow by the banking community will have to cut the waste and live within the countries means.
He says pictures of Marx should be on the US dollar not the founding fathers. His argument is that if income tax worked so well then why is the USA in the trouble it's in?
Armstrong's computer model predicted the debt crisis we are now in, in 1985. The same model predicted the downfall of the Soviet Union and the death of communism, his model now predicts western socialism (being just a little bit pregnant with communism) is going to die. Things will get very ugly for society but eventually it will lead to a new enlightenment. Read his direct taxation article here... External Link
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