April 14, 2011

Creating a Fair Tax Policy

In his address on reducing the deficit yesterday, President Obama spoke of creating a fair tax policy, but in looking at tax rates over the last 25 years, economist Jason Fichtner says that even if we raise taxes on the “wealthiest Americans” these increases will still hit the middle class. This is what we saw in the Clinton era, where the top 1 percent paid less as a share of total federal income taxes than they do today, and the middle class had to cover the rest, he said.

“The top 10 percent of Americans pay 70 percent of taxes, but the top 10 percent isn’t the so-called rich,” said Fichtner, scholar at the Mercatus Center at George Mason University. “The top 10 percent is a  teacher and a cop who married each other. Both make $60,000, and if they file their taxes jointly they meet the criteria for ‘the wealthiest Americans’, those who make $114,000 in total income. It’s based off tax returns, not individuals or families.”

“From an equity standpoint, the ‘tax burden’ as a share of total federal income taxes for the wealthy is near its highest in decades,” said Fichtner.  "The top 1 percent of taxpayers already pay close to 40 percent of federal income taxes (not including payroll taxes).”

Rather than raising taxes on the middle class, Fichtner says our attention should be on cuts to government spending and managing future entitlement costs. By reducing federal spending by 1 percent per year, we could eliminate the deficit in only 10 years.