Would a 10% Tax Increase Solve Our Deficit Problems?

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by Larry K. Greenwalt, CPA | Chairman of the Board

There was a large amount of interest regarding our last article “The ‘Tax the Rich Rhetoric’ Needs to Focus on the Realities of the Situation”, and we received a few questions which I wanted to address. One question related to the impact of those taxpayers in the $40-$100,000 income range.

We did a little more research using the resources of the Tax Policy Center, and the most recent table we could find, calendar year 2008–here is the breakdown:

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Calendar 2008 did not reflect the full impact of the recession compared to 2009, so the data above would be slightly different for 2009. In 2008, 36.4% of filers paid no income tax, and the top 21% (AGI greater than $75,000) paid 83.5% of the income taxes. We each probably have our own definition of what a middle income tax payer is, but no matter how you look at it, it appears to us that middle and high income tax payers are certainly paying their fair share.

Another of the questions we received was, if each of those taxpayers making $75,000 or more (21% of the returns filed) would pay an additional $2,000, would this have a significant impact on the national deficit? Here are some data points –

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There were a little less than 30,000,000 filers that had adjusted gross income of $75,000 or more. An additional $2,000 of tax on all of those filers would result in revenue equal to 5.6% of the estimated 2012 deficit.
What’s the point? As we said last time, we’re not arguing that tax rates couldn’t or shouldn’t be higher for high income individuals, but don’t expect doing that to solve the deficit problem. For example –

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As painful as it may seem, it appears to us that Congress needs to take a lesson from the State of Indiana and control government spending. We really can’t tax our way out of this problem, but know that there is already a 3.8% tax increase going into effect for those making more than $250,000 on January 1, 2013, to help pay for the government health reform bill! Additional government spending hasn’t restored employment or provided a healthy economy; but it has saddled us and future generations with an enormous amount of debt!

Uncertainty and burdensome costs and regulation are huge disincentives to the organizations and entrepreneurs that can drive our economy. We need leadership at all levels that can take the long view and put partisan politics aside. Think of the problems that Greece is having right now. What should we be doing as citizens to ensure a healthy future for all Americans? What needs to happen to get the country thinking and acting on the right track? I invite your comments. These are my thoughts, what are yours?