There is a growing consensus in Washington among policy and opinion makers (if not yet lawmakers) that taxes must rise in the next four years, and not just on the wealthy. According to a recent Quinnipiac poll, 60 percent of Americans favor rolling back the Bush tax cuts for families making more than $250,000. Apparently some very rich families agree and they're petitioning the government to raise taxes, starting with their own.
This story brings to mind the occasional conservative argument that if rich people want to pay higher taxes so badly, why don't they just donate their money to the government? It's true that it is technically legal to write checks to the Treasury, but this is a weak argument. The animating motivation behind paying taxes is not the unalloyed joy of writing checks to the government but rather the knowledge that you are part of a collective system that is funding a government and its policies. One rich family's check might cover two staffers. A higher marginal tax rate helps pay down an entire federal budget.
Or does it? According to WSJ economics editor David Wessel, congressional estimators -- correcting for people who will dodge higher rates -- expect that for every percentage-point increase in the marginal tax rate levied above $372,950, the government would raise $73.5 billion over 10 years. Raising the top two rates by one percentage point would raise $100 billion over 100 years. That's serious money. But it's about one percent of the $9 trillion of debt we're expected to add over the next decade. When Obama campaigned on the promise of rolling back the Bush tax cuts -- like the Democrats' 2004 presidential nominee John Kerry -- it was a keystone of his fiscal restraint platform. Today a realistic fiscal policy will require much more than raising the top marginal rate to its 2000 level.
The screaming over marginal rates is just a vocal warm-up for the tax showdown later this decade. A value-added tax, for comparison purposes, could raise hundreds of billions of dollars every year when fully enacted. A carbon tax could add a similar amount. US tax expenditures account for nearly $1 trillion of the US budget annually. There is quite of a lot of tax policy to reform. If we can't tweak the Bush tax cuts quietly, it bodes poorly for the inevitable tax debates to come.