The Christian Science Monitor notes that the International Monetary Fund, no stranger to countries in fiscal crisis, has proposed the a solution to U. S. fiscal problems which, at least, provides some idea of the scope of the problem:
One estimate, made by the International Monetary Fund, is that fixing America’s fiscal imbalance will require a one-third cut in government benefits and a one-third rise in tax revenues. The IMF should know. Its job for decades has been to force overspending nations to set their finances in order if they want its seal of approval for more foreign loans and investment.
The IMF’s tough love has worked pretty well in many nations to get them to fess up to past profligacy and then sign on to a measured pace of budget cuts, better regulations, and new revenue. Much of Latin America and parts of Asia and Africa have seen that light.
America’s current debate would benefit from the IMF’s main lesson about the future promise of fiscal discipline: A nation that takes its lumps quickly won’t regret it. Or rather, the admission of past errors and embrace of temporary sacrifice will bring out the fatted calf of economic growth.
To place that in perspective, since spending presently exceeds revenue by about 40%, the IMF’s formula would mean that 40% more of the reductions would come in the form of spending cuts than additional revenue.
There is no way that our fiscal problems can be resolved just by taxing the top 1% of income earners. The proposed increase in marginal rates would realize something between $40 billion and $80 billion in additional revenue per year. That’s a tiny fraction of the $1 trillion by which spending exceeds revenues.
What marginal rate would be required to balance the budget based on taxing the top 1% of income earners alone? I think that’s an unanswerable question. The question is what effective tax rate would be necessary? The answer to that is roughly 33%. Since the top 1% of income earners earn about 20% of the total national income and the total national income is approximately $15 trillion, one third of their gross incomes would need to go to taxes.
There are some who say that of course that can be accomplished. History suggests otherwise.
That means that either you’ve a) got to start seeking revenue from income earners below those rich 1%-ers, b) got to cut spending, c) just issue the credit for the difference, or d) some combination of the above. The president has rejected (a), the Senate Democrats have rejected (b), and (c) risks hyperinflation, IMO too big a risk to take. My preference is some reasonable combination of those measures but all reason is fled.