Earlier this week, I noted here that Treasury Secretary Geithner and NEC Director Summers were both taken to the woodshed for essentially admitting that President Obama’s new spending will require higher taxes, not only on the wealthiest top 1 percent of taxpayers, but on the middle-class. In today’s Washington Times, supply-side economist Dr. Richard W. Rahn, my old boss from my days at the U.S. Chamber in the 1980s, does a much better job of debunking this fraudulent notion that only taxing the wealthy can take care of Obama’s spending and deficit-cutting promises:
The Congressional Budget Office projects a total additional deficit of approximately $4.9 trillion dollars during President Obama’s first term (2009-2012). Currently, the top 1 percent of taxpayers pay 40 percent of the tax, or $450 billion a year, or approximately $1.8 trillion dollars during the next four years, leaving a $3.1 trillion hole. Increasing the tax rate on those high earners to 100 percent might yield an additional $1.5 trillion the first year, but this will only work for the first year. Most people, after being taxed 100 percent on their income, will quit work and/or put their investments in nontaxable entities, such as tax-free local government bonds.
It is also not mathematically possible to take care of all the new spending by increasing taxes on the top 5 percent of taxpayers (those making $160,000 or more annually) who already pay 61 percent of the federal tax (or $676 billion per year). Most of these people are now paying close to the revenue maximizing rate, which means that any increase in their tax rate is unlikely over the long run to bring in much more tax revenue.
Quite simply, upper-income people have options. History shows that when tax rates are raised, many will choose to work less (leisure is nontaxable), retire earlier than they had planned and save and invest less in taxable, productive activities. Those making more than $160,000 per year would need to have their taxes roughly tripled to take care of just this year’s deficit. (One merely has to look at the tax evasion practiced by the chairman of the congressional tax writing committee, the secretary of the Treasury and the former majority leader, et al. at today’s tax rates to know that they and their colleagues, as well as most everyone else, will find either legal or illegal ways to avoid paying the tax.)
— Cesar Conda is a former policy advisor to Vice President Cheney and Mitt Romney’s 2008 presidential campaign.