Bend over, here it comes.
Our federal income tax rates would have to more than double to close the humongous government deficit. Even then, it wouldn’t be enough to balance the budget! So says the Tax Foundation, a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
Federal Spending So High That Even Prohibitive Income Tax Hikes Would Not Balance Budget
Washington, DC, March 12, 2010 — Federal income tax rates would have to be more than doubled across the income spectrum if Congress were to close the deficit in fiscal year 2010, according to a new report from the nonpartisan Tax Foundation. Instead of taxing joint filers with rates ranging from 10 percent to 35 percent, tax rates would have to start at 24.3 percent and reach up to 84.9 percent.
“The federal government is spending so much that even if policymakers were willing to fund government services with actual tax revenue instead of piling on more debt, the federal income tax system in its current form wouldn’t be able to raise that much,” said Tax Foundation Director of Policy and Communications Bill Ahern, who authored the report, “Can Income Tax Hikes Close the Deficit?” The paper is No. 217 in the Tax Foundation Fiscal Fact series and is available online at http://www.taxfoundation.org/publications/show/25984.
“Absent major changes in our tax code or spending patterns, the income tax system won’t be able to raise as much revenue as the government plans to spend for the foreseeable future,” Ahern said.
Even in 2012, when the President’s budget projects a lower deficit, tax rates would still be need to be prohibitively high in order to balance the budget, with rates ranging from 15.8 percent to 62.6 percent.
Average tax payments would have to rise by almost $10,000 in 2010 to erase the deficit. The average tax payment of a tax filer making between $75,000 and $100,000 would increase by $11,164. Taxpayers with AGIs over $1 million would see their tax bills climb by $969, 505.
If high-income people had to pay a federal tax rate ranging from 65 percent to 85 percent, adding on an 8 percent rate in most states plus local income taxes and payroll taxes would push tax rates close to 100 percent for some households.
“At some point, government would be taking away all earnings and there would be no incentive to work,” Ahern said. “There can be little doubt that the high tax rates necessary to balance the budget in the next several years would discourage all income-producing endeavors.”