The latest tax data available is for 2013. The income threshold to be included in the top 1 percent was $428,713. The filers in this percentile paid an average income tax rate of 27 percent. The chart above shows how much additional revenue would flow into the Treasury if the average tax rate were increased to higher rates between 50 and 100 percent. Based on the recent Congressional Budget Office projection, the government will spend over $3.9 trillion in Fiscal Year 2016, about $10.732 billion per day. This figure was used to compute the number of days funded by the tax hike.
Raising the rate to 50 percent would increase tax receipts by $394 billion, which would fund the government for 36.7 days. At 90 percent, $1.08 trillion would flow into the government. This would provide funding to keep the government open for 101 days. For more tax hike stats, check out our new Fund the Fed widget.
As we’ve noted several times, those making the “fair share” argument need to explain what would be fair.
While the figures above are based on a static analysis, it shouldn’t be forgotten that taxpayers will respond to tax hikes. On the Neil Cavuto show, a Sanders supporter and coordinator of the Million Student March protest movement said, “There’s always going to be a 1 percent in the U.S.” Ok, yes. But after a while, the taxable wealth of the 1 percent will shrink.
There are also economic consequences. Senator Sanders was referring back to the top marginal tax rate last seen in the early 1960s. What he didn’t note was that under President Kennedy’s proposal to reduce it to 70 percent (enacted in 1964 after his death), the economy grew and employment rates improved.
Equity is an important part of a tax system and as the data reflects, our system is quite progressive. And if the “fair share” crowd argue that tax hikes are necessary because of inequality, a study by the Brookings Institution study found that raising the top rates would not reduce income inequality. A fair tax code also encourages individual achievement and economic growth. The political rhetoric imploring higher taxes runs the risk of undermining these tax reform principles.