How Much Taxation Would it Take to Fund the Federal Budget?

photo credit: marcus demery

To best understand this spending aspect of the current budget negotiations in Washington, we must answer one crucial question: how much taxation on the top income-earners would be required to fully fund the present level of government spending?

To do so, we must first make the unreasonable assumption that the rich will not respond to confiscatory tax rates and hide money from being taxed. This is unreasonable because no scheme of taxation since WW2 has been able to capture more than 21% of GDP. With current spending levels around 23% of GDP, history suggests that no level of taxation we have yet tried would actually fully fund our current level of spending. But if we indulged some “static scoring” and assumed a static tax base, what would a zero-deficit, soak-the-rich taxation scheme look like at current spending levels?

For example, what would a 100% income tax on all those who earn over $10 million amount to? I’m not taking about a wimpy marginal rate, where one might tax only those dollars of income over $10 million (leaving the taxpayer $10 million). No, I’m saying you find all those who made more than $10 million and take every last penny — an absolute tax of 100%.

Using 2009 data, the IRS says that 8,274 tax returns were filed with incomes over $10 million. The total amount of income on those returns was $240.1 billion.

Our federal government alone is spending more than $10 billion a day. Thus, a 100% confiscation of all income of those making more than $10 million would amount to less than 24 days of federal spending.

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