Thursday, March 03, 2011

Tax Myths.

We're still feasting on the wealth of data found at the Tax Foundation website, for example the Summary of Federal Income Tax Data.

A recent survey revealed that a majority of Americans believe the myth that the budget deficit can be fixed by eliminating "waste, fraud, and abuse".

The Tax Foundation data, however, dispels another myth, namely that a "millionaire's tax" would solve the budget deficit.

In 2008, there were 140,000 federal returns that claimed an Adjusted Gross Income in excess of $1.8M. This group is the infamous "top 0.1%", with an average AGI of around $6M. The total AGI claimed by this nefarious cabal is $839B.

Therefore, even if the IRS were to take it all, it would cover only half of the 2011 budget deficit of $1.6T. In order to cover this deficit completely, you would have to tax the top 10% of income earners at a rate of 45%, or increase their current tax rate by a factor of 2.5. Note that this bracket begins at an AGI of around $113K.That's just to cover the deficit; the current debt would be untouched.

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