Federal budget deficits are rising faster than anyone would have imagined. About the only way to reduce spending would be to reform Social Security and Medicare. Congress doesn’t seem to be interested.
Politicians need to find enough money to keep the government running and will find that more difficult in the future. Bloomberg recently announced, “US Debt Interest Bill Rockets Past a Cool $1 Trillion a Year.” When the interest payments on the national debt rival the total amount we spend on defense, you know we have a problem.
One slogan we will hear is to “tax the rich.” Brian Riedl has run the numbers and concludes it won’t be nearly enough. For example, “Seizing every dollar of income earned over $500,000 wouldn’t balance the budget. Liquidating every dollar of billionaire wealth would fund the federal government for only nine months.”
In his study, he set upper-income tax rates at their revenue-maximizing level. He then matched that by reducing the loopholes and tax evasion used by the wealthy. His research shows that the “tax the rich model would only raise at most two percent of GDP in additional revenue.”
He understands if you are skeptical, because most Americans do not realize that the US tax code is already the most progressive of more than three dozen other developed countries. Put another way, the US “taxes the wealthy at European rates, while taxing the middle class at considerably lower rates.”
Other countries can do that because they have a hidden tax on their citizens known as the value-added tax or VAT. It is a consumption tax assessed at each production state of a good or service.