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 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.
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.