Soak the Rich, Part II

For my friends who think that low tax rates for the 237,000 Americans who have more than $1 million of annual income are the principal cause of the budget deficit, I commend a story that ran last night on NPR's All Things Considered -- a program not known for its Republican leanings. Replay the five-minute segment here. 

Eliminating the capital gains tax break AND raising the highest marginal federal tax rate to 50% would generate $100 billion a year. Meanwhile the federal deficit is more than 10 times that amount. Of course, the impact of eliminating the capital gains tax would be substantial. Watch what happens to your private pension plans when individual investors flee the stock market.

As for the Bush tax reductions, take a look at this chart from the presumably apolitical St. Louis Fed.

The red line shows total federal tax receipts, by year. The Bush tax cuts -- for both the middle class and the rich -- had a relatively small impact on tax receipts. The impact of the 2008 recession was much larger. 

But as I've written before, the primary cause of the enormous budget deficit is spending, not taxation. Look at the blue line on that graph, driven mainly by the wars in Iraq and Afghanistan and escalating entitlements. We cannot reduce the deficit substantially by raising taxes only. It's just math.