Taxes Are Not Too Low: It’s the Spending, Stupid

Tax Hikes Can’t Fix the Deficit

• Current Taxation: In 2010, the federal government collected roughly $2.2 trillion in total tax revenue. Income taxes accounted for $900 billion of collections, or about 40% of all tax receipts. The federal government spent around $3.5 trillion; the resulting deficit of $1.3 trillion was made possible by borrowing.
• Covering the Deficit: If Congress, rather than borrowing or cutting spending, raised income taxes by the $1.3 trillion necessary to pay for 2010 deficit spending, it would need to more than double income tax collections. In fact, income tax revenue would need to increase by 144% to cover the overspending.
• Government Spending Hidden from Taxpayers: The future tax burden created by this level of borrowing and spending is frightening. If Americans knew the level of income taxes they would have to pay in the not-too-distant future to cover current and future federal overspending, Tax Day would be even more alarming.

President Obama’s Tax Hike Plan

• Tax, Tax, Tax: Rather than seriously address out-of-control spending and entitlement reform, President Obama is once again proposing major tax increases to help pay for his reckless spending habits.
• Tax the Rich? If Obama convinced Congress to simply tax small business owners and investors who make $250,000 or more per year to pay off the deficit, their rates would have to rise to levels that are not even possible. The top two rates would need to rise to 132% and 142%, which is, of course, more than they earn.
• Killing Economic Growth: Moreover, it is impossible to get even close to 100% and still raise federal revenue because businesses, workers, and investors would simply stop producing, working, and investing as the government came close to confiscating almost every additional dollar they earn. Much of their economic activity would be driven underground.
• Spend More, Tax More: In his recently released budget, President Obama proposes to keep deficits at unsustainable levels throughout the 10-year window. Income tax rates would have to remain nearly 50% higher than current levels through 2021 across the board to close the gap without cutting spending.
• An Unsustainable Path: According to the Congressional Budget Office, if Congress enacts Obama’s 2012 budget, interest payments on accumulated deficits will total $931 billion in 2021 alone. That would account for 20% of all tax receipts. Combined with spending on other mandatory programs like Social Security, Medicare, and Medicaid, 95% of all tax revenues would be spoken for before Congress can allocate funds to national defense or any other essential function of government.

Obama’s Tax Hikes Are Not the Answer

• Tax Hikes Won’t Fix the Spending Problem: Raising taxes in the face of a spending crisis will not solve the problem as entitlement and interest spending continues to balloon out of control. Tax rates would have to be perpetually raised to keep pace.
• Cut Spending: Congress and the President must cut spending, and they must do so soon—before interest expenses and entitlement spending take off.
• Stop Taxing Our Future: It is time for Congress and the President to stop the current trajectory of massive spending and borrowing and be honest with the American people about the hidden deficit taxes that they are asking them to pay in the future.

For more information, please visit: http://heritage.org