Category Archive 'Tax Increases'

21 Apr 2011

Return to Clinton Era Tax Levels

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Moderate Megan McArdle warns that accepting the liberal Kevin Drum‘s prescription to return to Clinton era tax rates would not come even close to paying for the federal deficit but would have very serious economic consequences.

Saying “all we have to do is go back to the tax rates under Clinton” is effectively saying “all we need is another asset price bubble that funnels a huge amount of money into the pockets of the rich”. This seems neither particularly feasible, nor desirable.

If we pick, somewhat optimistically, the mean tax take of the Clinton years, that means that we need a tax hike of 5-6% of GDP. And not over 20-30 years. …

A tax hike of 5-6% of GDP doesn’t sound like much. But that’s a big tax hike if your baseline is 19%–it means that everyone’s taxes go up by about a third. If the equilibrium tax revenue at Clinton rates is more like 18-18.5% of GDP, then obviously, they have to go up even higher, from a lower baseline. If you try to concentrate the pain on the wealthy or corporations, it’s an even bigger whack. Meanwhile, state and local taxes will be going up too; they have many of the same pension and entitlement problems that the federal government does.

These aren’t little adjustments. They’re huge changes in the overall tax burden, and they will have big effects on peoples lives, and the economy.

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