Higher taxes for the 1% won’t be enough to reduce the national debt – Indianapolis Business Journal
Recently, Congress passed and the President signed the Inflation Reduction Act, a change in federal government tax and spending policy. The Cut Inflation Act is a significantly scaled down version of a more ambitious Build Back Better budget plan.
The bill passed is estimated to reduce the federal government’s deficit over the next 10 years, but by a relatively small amount of $264.1 billion. We suspect that Congress will again discuss tax policy and ways to increase government revenue in this decade.
Using tax data from 2019, the most recent year for which complete data is available, the federal government collected $3.46 trillion in revenue and spent $4.4 trillion. Sources of revenue were $1.7 trillion (49%) from personal income tax, $1.2 trillion (35%) from Social Security and Medicare taxes, $230.2 billion (7%) in corporate income tax and $98.9 billion (3%) in excise duties. taxes. The remainder comes primarily from Federal Reserve Bank revenue, customs duties, unemployment insurance taxes, and estate and gift taxes.
If we take Social Security and Medicare taxes out of the equation, our back-of-the-envelope calculations suggest that federal personal income tax will be about 75% of all federal revenue, even with the new increase in corporate income tax.
Some suggest that only the ‘rich’ should pay for increased tax revenue since they are not paying their ‘fair share’. Of course, what a “fair share” is is a matter of opinion. Should the rich pay a higher proportion of their income than the poor? And if so, how much more? Twice, three times, 10 times? We can’t answer that question, but here’s the data for 2019.
The top 1%, with adjusted gross incomes of more than $546,434, ceded an average of 25.6% of their income to federal income tax. The next richest 9% (adjusted gross incomes greater than $154,589 but less than $546,434) fell 15.7%, while those in the bottom 50% (adjusted gross incomes of $44,269 or less) fell less than 3.5% tax. The top 1% of taxpayers paid more than seven times what the bottom half taxpayer paid as a percentage of their income.
Suppose Congress reduces deficits and the rising national debt over the next few decades without any spending cuts. Personal income tax will have to be increased. And it’s hard to imagine how the necessary income can come exclusively from the top 1%.•
Bohanon and Horowitz are professors of economics at Ball State University. Send your comments to [email protected]