Sorry, Middle Class: In a Few Years, Your Taxes Will Have to Go Up, Too

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Here are two facts about taxes under the fiscal cliff deal.

Fact One: This year, the 1 percent will pay more in taxes than in any year since 1979.
Average_Federal_Tax_Rates_Top_1_Percent-thumb-615x480-109671.png

Fact Two: We're still not raising enough revenue for the next ten years. Total tax revenue for the next decade will be 18 percent or 18.5 percent of the overall economy. Okay, so that's not far from our historical average. But the next decade's spending demands are nothing like our historical average. We're entering a historically unique moment where we've promised to pay health care and retirement insurance to tens of millions of Boomers, and that will require more money than we're currently collecting for the government -- even if we means-test or change benefits.

fiscalcliff_fig1.png

Fact One suggests we might be through raising taxes on the rich. Fact Two suggests we're not through raising taxes in total. And both facts together suggest that the next tax increase will have to come from families further down the ladder. Maybe we'll start by raising rates or limiting deductions for the 98th and 97th percentiles, who are hardly middle class, but also hardly millionaires. Or maybe under Republican leadership we'll start by clearing out deductions that force lower-income families, many of whom don't owe positive federal income tax, to take fewer benefits.

Right now, Washington doesn't need more money and most families can scarcely afford to pay more in taxes without threatening the shallow recovery. Still, it's impractical to think that revenue as a share of GDP will stay this low after the economy improves and interest rates rise and Medicare and Medicaid costs swell for the retiring Boomer generation. Taxes will have to keep rising and we might be running out of space at the top. 

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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