Tax the Rich!!! (or not…)

There’s been quite a bit of talk of making the rich “pay their fair share” as a way of solving the U.S. budget problems.  I got curious as to how much good it would actually do.  I’m not interested in being super-duper precise here — just enough to know whether there is any sense in it or not.  PLEASE note that this is NOT a meant to be any statement of support for either end of the political spectrum as my feeling is that both extremes are self-deceiving at best and  self-serving at worst.

Here’s what I found:

The Current Population Survey from the Census Bureau reveals that there are 2.484 million households (out of 118 million) in the U.S. that make more than $250,000 per year.  Those households have an average income of $398,194 per year. With current tax brackets, their upper income is taxed at between 33% and 35% That’s on everything ABOVE $250K/yr of taxable income, so $148,194 per household.  At 33% that would bring in about $121 billion per year.

What if we raised it to 50%?  That would give the U.S. government about $63 billion more per year.  What if we TOOK IT ALL — ALL THEIR INCOME OVER $250K PER YEAR??? The U.S. government would get a little less than $250 billion a year more (in year one — after that NO ONE would be interested in making over $250K a year anyway, so the take would go to $0).

Through July of this year the federal deficit — the amount we’ve overspent so far just this year — was $974 billion.

So…  if we took away all income over $250,000 from the wealthiest 2.5 million households in the U.S.,  we would only be able to cover about a QUARTER of our current overspending.  So no matter how much we tax the rich, it barely even puts a dent in the problem.

That means EVERYONE is going to pay much, much more in taxes or we’re going to see HUGE reductions in spending. The former means much slower economic growth and reduced prosperity.  The latter means cutting Social Security, Medicare/Medicaid and the military (along with interest on the debt they make up ⅔ of the budget, so you can’t balance the budget without cuts there).  We have to pick our poison… there is no such thing as a free lunch.