Can Only Taxing Income Over $250,000 Pay Off Our Debt? Count Down to Tax Day

President Obama has pledged not to raise taxes on individuals who earn under $200,000 a year or on couples earning under $250,000. It seems highly unlikely that the President will support enough in spending cuts to make this promise realistic (see here and here).

Ezra Klein over at the Washington Post recently featured some numbers put together by the Tax Policy Center and the Wall Street Journal. They estimate higher-income individuals and couples will make about $24 trillion in taxable income between 2010-2019. About $7.5 trillion of that will go to federal income and payroll taxes -- perhaps a bit more with the health care bill in place. On top of that, we estimate about $2 to $3 trillion would go toward a variety of state and local taxes. All said, these high earners will have about $14 trillion in remaining taxable income over the next decade. (That $14 trillion number includes not only the income above $250,000 -- but the income below that threshold, from higher earners.)

Individuals Earning Above $200,000 and Couples Earning Above $250,000

2010-2019 ($ in trillions)

Projected Taxable Income $24 trillion
Projected Federal Taxes $7.5 trillion
Projected State and Local Taxes (Assuming roughly 10% rate) $2.5 trillion
Remaining Taxable Income $14 trillion


The higher the taxes levied on this income, the more it will shrink. For one, taxpayers would use new and existing means to hide their income -- labeling themselves as businesses, doing their banking offshore, spending their money on tax-preferred activities, gifting their money to lower earning family members, accepting more income in the form of fringe benefits, etc.

On top of that, higher tax rates cause real change in economic behavior. As the government lays claim to higher percentages of earnings, incentives to work, invest, and innovate are decreased and the whole economy suffers.

In a static analysis which excludes the effects we described above, TPC finds that the top two rates would need to increase to 72 and 77 percent just to get the deficit down to 3 percent of GDP by 2019. And these rates would have to get even higher after 2019; the fiscal situation is projected to get a lot worse after that.


The bottom line is that we can't solve our fiscal problems solely on the backs of high earners.

And in order to help paint a realistic picture of what will be involved, now should be the moment for politicians to make promises about what they will do; not what they will not do.


Big Bureaucracy

We could start with the #1 politician in the country - the President announcing what he would do. So far he declared what he wouldn't do - he wouldn't tax the folks earning less than $250 000. Time to enlighten us what is he going to do - since taxing the rich ain't gonna do it.

Greetings! Ellie from

 The information provided in

 The information provided in the article is execellent.The pledge done by obama is very appreciated.




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It is true that taxing the

It is true that taxing the rich or increasing the tax burden on rich community won’t solve the problem but it will be one way to reduce the burden of problems for some period. In such times the high earning people or the higher business class and specially the politicians should take keen initiative to give some good solutions. It is really a good step by our president not to tax the people earning less than $ 250,000. The statistics explained in the article is just perfect and to the point. Tax Matters Solutions

One other problem

One other problem is what to do the following year when there are no rich left to fleece? I guess that we could redefine rich as being anyone making over $40,000. Tax Advisor America

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