"It profits me but little that a vigilant authority always protects the tranquillity of my pleasures and constantly averts all dangers from my path, without my care or concern, if this same authority is the absolute master of my liberty and my life."

--Alexis de Tocqueville, Democracy in America

Monday, February 27, 2012

I've Got a Plan That Involves Saying "1%" Too

We are going to hear a lot this year about how we could solve all of our fiscal problems if we would just raise the taxes on the top 1% of income earners back to the Clinton Era rates (or raise them from 35% to 39.6%).   This is nonsense, of course; in 2009 the top 1% earned $1.3 trillion in income, so if we raised their income tax rate 4.6% we'd raise a grand total of $60 billion, assuming of course, that they didn't change their behavior when faced with higher income taxes (a bad assumption, as conservative economists have been telling people forever).  

However, I have a different 1% plan.   What if Republicans campaigned on this notion?   Let's enact a new tax law that says that the minimum federal income tax anyone can pay is 1%.    That is, your earned income tax credit and all of the other deductions that get us to the point where 49% of Americans pay no federal income tax -- let's wipe all those away, and institute a minimum 1%.   Is that too much for the privilege of being a citizen?   Is that going to impoverish anyone?   Is anyone going to starve if they get that tiny bit of skin in the game -- $200 for someone who makes $20,000?   I don't think so.   But let's compare how much that would raise.   The amount of income earned by people in the bottom 50% (I'm using this as a proxy for the 49% who pay no income tax) in 2009 was $1.05 trillion.    So my 1% plan would raise approximately $10 billion in taxes.   But (and here's the rub), we'd also be doing away with the $51 billion in earned income tax credits (in 2008) that are essentially negative income taxes paid by lower income individuals and families.  The upshot:  my 1% plan would raise almost the same amount as Obama's 1% plan, if not a little more.  

The difference would be that my plan would be premised on the notion that all citizens should really pay a "fair share," as opposed to the entirely absurd premise that a "fair share" means the few people we call "wealthy" pay a lot more and most of the rest of my fellow Americans pay nothing. 

Of course, neither plan would make a dent in our federal deficit.   They'd just make one side or the other feel better. 

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