Good discussion here of the arguments for and against letting the bush tax cuts expire in January:
The answers to digging out of debt are the same for governments as they are for individuals: cut spending and increase revenue. Dean's point about higher income earners being able to pay more tax dollars without curtailing their consumption spending is valid. Meanwhile those on the lower end of the income scale will actually pay somewhat lower taxes under the new regime. This CNN.money article explains the math:
Take someone with a taxable income of $210,000. Last year, they owed $54,000 in taxes (assuming one personal exemption and a basic standard deduction), but they would owe $53,512 under the new tax bracket, amounting to a $488 tax reduction….A single filer with a taxable income of $250,000. This year, you owed $67,617 in income tax under the 33% bracket. Under the new system, you would pay $67,912 in taxes next year, a slight increase of $295. if you make $382,650 you'll owe an extra $4,095 in income tax.
Single filers with $500,000 in taxable income would owe Uncle Sam an additional $9,492 from this year's tax bill. Meanwhile, joint filers with taxable income of $700,000 would owe $232,396 in 2011, an extra $17,088 from $215,308 in 2010.
A single filer with a million dollars in taxable income would owe $32,493 more than in 2010, While joint filers with the same income would owe $30,888 more than they paid in 2010.
For single filers making $5 million in taxable income, get ready to hand over $1,944,137 for the 2011 tax year, an increase of $216,493 from $1,727,644 in 2010.
The Bush tax cuts should never have been implemented in the first place. At best they provided a tax holiday for the highest income earners and some artificial stimulus in the short-term at the expense of the economy’s longer-term health (a hefty price which is now fully evident in the aggravated deficits). Some 30% of the US annual deficit that has been accumulating every year since 2003 is directly attributable to the tax cuts. America could not actually afford them in 2003 and it certainly cannot continue to fund them now.
So yes the “rich” need to pay marginally more now to help clean up the debt. They have saved tax over the past 7 years, now they have to give some of that back. It turns out it was only a deferral not an outright savings, so be it.
At the same time, the next group up for fiscal review has to be government workers. The Commerce Department just released its annual report on worker compensation by industry and found that the average federal worker in the US earned 123,000 in 2009 (including benefits), a whopping 100% more than the average private sector worker who made 61,000. In an era where more than 8 million people have lost their employment in the past few years, federal employees have continued to grow and receive annual pay increases which have outpaced inflation by 33% over the past 10 years. There are now just under 2 million federal civilian workers in the US and their payment premium over private labour costs, is estimated to cost the Federal government about 100 billion dollars a year. When we include state and federal employee expenditures the over-payment amounts to about 500 billion a year. Again this is money which the government does not really have and is funding on its line of credit to keep up. See Federal Workers make Twice That of the Private Sector for more details and charts on this.
Entitled societies and people eventually learn the hard way that they have to give to get. Tax rates do need to go up but this is not so that governments can spend more, governments need to spend less and direct the extra tax revenue to paying down the debt. The truth hurts everyone, but tax increases and expense cuts across the board are needed to tackle this generational issue. Continued ignorance and reckless spending will be far more painful down the road than adopting the changes needed now.