April 22, 2011

MEGAN MCARDLE: Large Tax Increases Are Not A Semantic Question:

Yesterday I argued that simply covering our medium-term fiscal problems with tax hikes was not going to be easy or relatively painless; we’d have to go back to the Clinton era tax rates, and then hike rates again by at least a third, possibly more. Today Kevin Drum responds that this doesn’t seem so bad. . . . Of course it depends on how we implement such a hike. But looking just at the federal income tax makes no sense. In order to raise taxes to the 25% of GDP that Kevin wants, all taxes need to rise by at least a third, not just income taxes: excise taxes, corporate income taxes, payroll taxes. And we’re talking about rising from the Clinton level, not from the current effective tax rate level. That’s going to be a lot more than 5%. . . . In other words, for the poorest 20% of Americans (who make less than $20,000 a year, with an average income of $11,500), taxes go from about $660 to about $1320. For the middle quintile (making an average of $50,000 a year), taxes go from around $7,000 to over $12,000. For those in the top quintile, with an average income of $167,000, taxes jump from a $41,000 to $62,000.

Turn it around and look at the effect on incomes: after tax incomes drop from $10,840 to $10,180, in the lowest quintile; from $43,000 to $38,500 in the middle quintile; and from$125,000 to $105,000.

Well, that would give the anti-tax movement a shot in the arm, wouldn’t it? How many people, given the choice between massive cuts in the federal budget, and cuts like these in their own budgets, would choose to cut their own?

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