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1 William Ahern, Can Income Tax Hikes Close the Deficit 1 (2009)

handle is hein.taxfoundation/ffbjhxz0001 and id is 1 raw text is: FFISCAL October 2009 FA CT No. 197 Can Income Tax Hikes Close the Deficit? By William Ahern For all but three years of the past 40, the federal government has run a deficit, and at the most basic level, the reason is simple. In their desire to be re-elected, congressmen are afraid not to spend more and more, and they're equally afraid to give voters the bill for those services, even though that bill must inevitably be paid. During the fiscal year that's just beginning, fiscal year 2010, the federal government plans to spend $3.8 trillion dollars, the largest annual expenditure ever. On the revenue side, taxes will bring in about $2.3 trillion, so the federal government is creating a shortfall of approximately $1.5 trillion. That projected deficit will vary as the months pass, but it may well end up being even higher than the record-setting deficit in 2009 of $1.4 trillion. Those huge amounts translate into a federal government that will spend $33,000 on each household but that will raise only $19,000. Although President Obama and the Congress do plan to raise taxes, which will cut into the deficit, they also have new spending plans, leaving the budget with historically huge deficits throughout the next decade. Those deficits will be financed by selling U.S. Treasury bonds to people all over the world and paying them back with interest in years to come. But instead of borrowing, could a congress willing to bring taxpayers the full bill for this year's spending erase the deficit by raising taxes this year? Using the Tax Foundation's Microsimulation Model, we can project how much revenue a broad-based increase in federal income tax rates would generate. However, when the rates necessary are spelled out, it becomes apparent that deficits this large simply cannot be closed with higher federal income tax rates. This year and for several years to come, even if congressmen were willing to present the full bill to the taxpayers in the form of higher taxes to match their spending level, they could not do so. About 40 percent of the federal government's revenue comes from payroll taxes at a rate of 15.3 percent of wages. After taking that chunk from the nation's paychecks, the federal government turns to the individual income tax for most of the rest. And the income tax is always the principal lever that Congress uses whenever it wants to adjust taxes up or down. William Ahern is director ofpolicy and communications at the Tax Foundation.

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