From today’s editorial page of the Washington Post:
…Based on these numbers [from a new CBO analysis of effective tax rates by income categories], it would be hard to argue that the country doesn’t already have a significantly progressive tax system. Taxes aren’t just for suckers, with cashiers paying more of their income than corporate chief executives. Nor is the system egregiously stacked against the wealthy — who, after all, receive the bulk of the income. The top quintile earned over 55 percent of the income, and the top 1 percent earned a full 19 percent of all income.
This matters because the simple truth is that in the coming years, taxes will have to go up to help close the government’s gaping fiscal hole. Much of the budget gap should be covered by spending cuts, but judging from recent budget proposals by both parties, neither has an appetite for reductions anywhere near what will be needed.
When taxes go up, they should be increased in a way that makes the tax code more progressive. Income inequality has widened for the past three decades, and it only makes sense for those who have benefited to pay more. But there is a limit to how much the tippy top should bear. President Obama has promised that taxes will not be increased for families making under $250,000. That is a promise that will probably have to be dropped down the road. There just isn’t enough revenue to be found above that figure…
I agree that we’ll have to look and think more broadly when it comes to revenue, but there’s more potential income tax revenue above that $250,000 threshold than one might think if we are willing to: (i) start from a point where the Bush tax cuts all expire as scheduled on December 31, 2010, recognizing that a large portion of the $2 trillion in extended “middle-class” Bush tax cuts proposed in the Obama budget would still benefit those “rich” households over $250,000 (see this table by the Tax Policy Center); and (ii) broaden the tax base by reducing some of the exemptions and deductions which by their very construction disproportionately benefit that over-$250,000 crowd. It’s important to remember that raising taxes on the rich and increasing the progressivity of the tax system doesn’t have to involve trading off economic efficiency and growth. (It often does–because the politicians and the politics shape tax policy more than the tax policy experts do–but it doesn’t have to.)