Reply #20: If 5.4% yields $50 billion...

[rayofreason]

...then a 54% boost would get to $500 billion, and 162% would provide $1500 billion, leaving only a $100 billion deficit for this year. $50 billion is a rounding error, so if we are going to get serious we have to talk real money.

According to the IRS the average income for a tax return in the top 0.1 percent was $6.0 million in 2008 (about 140,000 returns), while the average amount of income tax paid was $1.36 million, indicating an average effective individual income tax rate of 22.7 percent. So a 162% increase (what would be needed to really close the budget deficit) would mean an average effective federal income tax rate of 59.5%, plus whatever state and local taxes are collected (about 6% total in MD, for example).

Actually, if you levy a 162% increase on the top 0.1% you only get an additional $308 billion, so I am not sure that the other $1200 billion can really come from people making between $1 and $6 million, but let's assume the Sander's number is correct, and that one really should be aiming for increasing Federal revenue by 10% of GDP ($14 trillion in 2009) in order to deal with the deficit. How would this look in historical context?

The total Federal tax receipt as a percentage of the GDP since 1945 has been remarkably stable around 18% (though state revenues have gone up)

http://www.usgovernmentrevenue.com/revenue_history

despite considerable variation in the marginal tax rates over that period,



So it would seem that any legislation that seeks to increase the Federal take from 18% to 28% of GDP (what is needed to close the deficit through taxes) must be cognizant of the long term trend since 1945, have analyzed and determined the origin of the trend, and have a solution that would reset this 65-year trend to a 55% higher value. Just changing tax rates or imposing surcharges simply will not work since both high tax rates and low tax rates have resulted in the same Federal tax receipt of 18% of GDP for 65 years.

Then one needs to examine the problem of state deficits and unfunded entitlements....