MAGA Goal: Debt Reduction or Tax Cuts?

[DaisyDay]

What would make America great again, paying off the national debt or giving workers and corporations tax cuts? During the last campaign season, there was a lot of talk from Magadonians on the important debt crisis we are constantly facing with many saying it was the most important issue. We know that the last Trumpian tax cut added some one to two trillion dollars.

American Progress.org (link)

Tax Cuts Are Primarily Responsible for the Increasing Debt Ratio​

A series of massive, permanent tax cuts have created large federal budget primary shortfalls and continue to exert upward pressure on the debt ratio. In other words, the current fiscal gap—the growing debt as a percentage of the economy—stems from legislation that cut taxes, disproportionately for the very rich. While it is true that the Great Recession and legislation to fight it, along with the costs of responding to the health and economic effects of COVID-19, pushed the level of debt higher, these costs were temporary and did not change the trajectory of the debt ratio. If Congress wants to decrease deficits, it should look first toward reversing tax cuts that largely benefited the wealthy, which were responsible for the United States’ current fiscal outlook.​

Tax Policy Center.org (link)

Expiring provisions​

To satisfy budget process requirements, lawmakers decided to sunset some provisions of the TCJA. Most cuts to individual income taxes, for example, expire at the end of 2025. Business expensing for new investment is also temporary. As conventionally scored, the act thus increased deficits from 2018 through 2026 and decreased them thereafter. If lawmakers decide to extend all the expiring provisions, however, that will add about $480 billion to deficits through 2027 and a growing amount thereafter.​

...If TCJA’s expiring provisions are eventually made permanent, however, deficits will be persistently higher.​

 

[Fantine]

My answer isn't listed. We need to reduce debt by revoking the tax cuts on the highest earners (who got almost all the tax cuts.)
The working poor, especially families, can't afford reductions

 

[ThatRobGuy]

If people could keep their hands out of the cookie jar, I would say debt reduction is a more important goal (even if it means we had to raise taxes to do it).

But that first "if" is a big "if".

Tax & Spend seems to be a popular and prevailing theme.


...it's one of the reasons why I'm not a huge fan of these big "omnibus" spending packages. By the time everyone tosses in all of their little wishlist items in there to get enough votes to clear both chambers, you end up with monstrosities.


Even if we could force the top earners to voluntarily get on board with paying more taxes, the effect wouldn't be a sweeping as some may hope it would be.

I asked AI to do the math for me lol

In 2021, the top 5% of U.S. earners—those with adjusted gross incomes (AGIs) of $252,840 or more—paid approximately $1.4 trillion in federal income taxes, accounting for about 66% of the total federal income tax revenue. If this group were subjected to an additional 10% tax on their income, it would additional revenue.


To estimate this, we consider that the average tax rate for the top 5% was 23.1%. Assuming this rate applies uniformly, the total income for this group can be approximated by dividing the total taxes paid by the tax rate:

Total Income=$1.4 trillion0.231≈$6.06 trillion\text{Total Income} = \frac{\$1.4 \text{ trillion}}{0.231} \approx \$6.06 \text{ trillion}Total Income=0.231$1.4 trillion≈$6.06 trillion

An additional 10% tax on this income would therefore yield:

Additional Revenue=0.10×$6.06 trillion≈$606 billion\text{Additional Revenue} = 0.10 \times \$6.06 \text{ trillion} \approx \$606 \text{ billion}Additional Revenue=0.10×$6.06 trillion≈$606 billion


We pay 1.3 Trillion in interest on our debt.

So even if we could magically get the top 5% of earners to agree to a 10% tax increase, the additional revenue would equate to half of what our interest payments are.

What It Takes to Stop Debt Growth:​

To stop debt from growing, the federal government would need to cover both the interest on the debt and eliminate the deficit, meaning a revenue increase of at least $1.7 trillion per year.

Required Tax Increase:​

If the entire burden were placed on the top 5%:

1. The current tax rate on this group is ~23.1%.
2. To generate an extra $1.7 trillion, their total tax burden would need to increase from $1.4 trillion to $3.1 trillion.
3. This means their effective tax rate would need to more than double from 23.1% to around 51%.

So just to stop the debt from growing, even if we placed the entire burden on the top 5%, we'd have to bump their effective tax rate from 23% up to 51%. Odds of that happening? Slim and none.

 

[Fantine]

At one point the top tax rate on the wealthiest earners was 39%--and the deficit was a lot lower.

The average citizen knows that he can't trade in his Honda Civic for a Tesla without making enough money to afford a Tesla. He might get the money by getting a second job, but his income has to increase.

The same thing for the government. The benefits we provide to citizens are pretty modest compared to Western Europe and Canada. We are not in hock because we try to have a social safety net that is pretty threadbare compared to other developed nations.

And a social safety net is essential if we want to have a nation with widespread prosperity.

Because what happens when you have 10 haves for every 90 have-nots? The haves get poorer. No one is buying their cars or merchandise. Or traveling to their hotels. Or eating at their restaurants. They can't afford medical care.

When you have a healthy middle class, everyone prospers.

 

[RoBo1988]

As far as taxes are concerned; keep everything as is - don't raise, don't cut. Put out a budget that REDUCES SPENDING, and eliminate departments, already duplicated in the states.

Then, we could possibly talk about tax cuts.

 

[Richard T]

If people could keep their hands out of the cookie jar, I would say debt reduction is a more important goal (even if it means we had to raise taxes to do it).

But that first "if" is a big "if".

Tax & Spend seems to be a popular and prevailing theme.


...it's one of the reasons why I'm not a huge fan of these big "omnibus" spending packages. By the time everyone tosses in all of their little wishlist items in there to get enough votes to clear both chambers, you end up with monstrosities.


Even if we could force the top earners to voluntarily get on board with paying more taxes, the effect wouldn't be a sweeping as some may hope it would be.

I asked AI to do the math for me lol

In 2021, the top 5% of U.S. earners—those with adjusted gross incomes (AGIs) of $252,840 or more—paid approximately $1.4 trillion in federal income taxes, accounting for about 66% of the total federal income tax revenue. If this group were subjected to an additional 10% tax on their income, it would additional revenue.


To estimate this, we consider that the average tax rate for the top 5% was 23.1%. Assuming this rate applies uniformly, the total income for this group can be approximated by dividing the total taxes paid by the tax rate:

Total Income=$1.4 trillion0.231≈$6.06 trillion\text{Total Income} = \frac{\$1.4 \text{ trillion}}{0.231} \approx \$6.06 \text{ trillion}Total Income=0.231$1.4 trillion≈$6.06 trillion

An additional 10% tax on this income would therefore yield:

Additional Revenue=0.10×$6.06 trillion≈$606 billion\text{Additional Revenue} = 0.10 \times \$6.06 \text{ trillion} \approx \$606 \text{ billion}Additional Revenue=0.10×$6.06 trillion≈$606 billion


We pay 1.3 Trillion in interest on our debt.

So even if we could magically get the top 5% of earners to agree to a 10% tax increase, the additional revenue would equate to half of what our interest payments are.

What It Takes to Stop Debt Growth:​

To stop debt from growing, the federal government would need to cover both the interest on the debt and eliminate the deficit, meaning a revenue increase of at least $1.7 trillion per year.

Required Tax Increase:​

If the entire burden were placed on the top 5%:

1. The current tax rate on this group is ~23.1%.
2. To generate an extra $1.7 trillion, their total tax burden would need to increase from $1.4 trillion to $3.1 trillion.
3. This means their effective tax rate would need to more than double from 23.1% to around 51%.

So just to stop the debt from growing, even if we placed the entire burden on the top 5%, we'd have to bump their effective tax rate from 23% up to 51%. Odds of that happening? Slim and none.

A good analysis. The USA needs to reduce spending and raise taxes to even come close to balancing the budget. Otherwise, I think the rich and poor both will get hit by more rounds of inflation, the hidden tax on us all.
I find it interesting how the rich often cite how much they pay in taxes. I look at the other side of the coin. A truly rich person would be happy to pay 100% of the taxes because it would mean that they basically have all the income to do this.

 

[FireDragon76]

The most important thing is to close tax loopholes for the wealthy and corporations. No corporation or individual making more than $150,000 a year should be playing less than 15 percent of the earnings on taxes.

 

[Belk]

As far as taxes are concerned; keep everything as is - don't raise, don't cut. Put out a budget that REDUCES SPENDING, and eliminate departments, already duplicated in the states.

Then, we could possibly talk about tax cuts.

Reduces spending where? We need to look at Medicare, social security, and defense. These are 75% of our budget (besides our interest payments of course).

 

[Belk]

The most important thing is to close tax loopholes for the wealthy and corporations. No corporation or individual making more than $150,000 a year should be playing less than 15 percent of the earnings on taxes.

Are you saying 15% across the board or 15% above 150K?

 

[FireDragon76]

Are you saying 15% across the board or 15% above 150K?

15% above $150,000 as a minimum. Currently, alot of wealthy people don't pay any taxes, and neither do many corporations.

 

[Belk]

15% above $150,000 as a minimum. Currently, alot of wealthy people don't pay any taxes, and neither do many corporations.

As someone in the 22% bracket I wouldn't mind a cut.
Seriously though I very much agree. We need to ensure those with the wherewithal are chipping in.

 

[RoBo1988]

The most important thing is to close tax loopholes for the wealthy and corporations. No corporation or individual making more than $150,000 a year should be playing less than 15 percent of the earnings on taxes.

The wealthy would just move their money offshore, and corporations are the tax collectors via federal withholding.

So it goes back to squeezing the working class, who cannot afford the lawyers, and tax accountants; to pay the bill.

 

[FireDragon76]

The wealthy would just move their money offshore, and corporations are the tax collectors via federal withholding.

So it goes back to squeezing the working class, who cannot afford the lawyers, and tax accountants; to pay the bill.

It worked somehow decades ago. I don't see why we can't do it again.

 

[Aryeh Jay]

I didn't buy an 82 foot sailboat last year for a a little under half a million last year in Newport News, VA to reduce government debt, tax breaks baby!

It's strange that my Federal taxes are only $17,000 a year more than when I was a lowly Walmart employee in 2020 even though I am making over 8x as much. I am so proud of my former coworkers who support the system that allows me to make more than the combined wages of my old team. By the first week of February I surpassed my former supervisors annual paycheck. Keep voting for Republicans because we have YOUR best interests in mind.

And I am at the near bottom of those who really benefit. At the marina, I am still a white trash 25 meter guy who can only light cigars with $10 bills but I have the gate code and can use the club house.

 

[ThatRobGuy]

A good analysis. The USA needs to reduce spending and raise taxes to even come close to balancing the budget. Otherwise, I think the rich and poor both will get hit by more rounds of inflation, the hidden tax on us all.
I find it interesting how the rich often cite how much they pay in taxes. I look at the other side of the coin. A truly rich person would be happy to pay 100% of the taxes because it would mean that they basically have all the income to do this.

I think it's a combination of factors with regards to the "tax-resistant rich" as we'll call it.

Some of it is obviously purely greed (some people seem think they can never get enough, and think a dime of their own money is too much to chip in), it would be naive to deny that aspect. There are plenty of "Scrooge" types out there.

But I do think some of the tax resistance is rooted in more sincere concerns about the efficiency and stewardship with which that money gets spent, and fears that it could start becoming too easy to just start spending without planning. (The same reason lottery winners never seem to be as careful with their millions as a person who worked for it...and the same reason why kids start thinking a little more about their money when their parents make them get a job to earn vs. an allowance)


I think evidence of this is how some of even the left-leaning philanthropists choose to apply their money towards causes.

Bill Gates would be a perfect example. He's donated over $50 billion towards public health causes via private philanthropy (and committed a lot more towards that cause for when he passes away). Bill Gates certainly isn't an "anti-government guy" by any stretch. However, if he thought government was the best vehicle to achieve those aims, he'd just cut Billion-dollar checks to the US Treasury department and let them handle it. And I'm sure if you could ask him "Bill, would you rather pay more in taxes, or take the tax break, and be able to put your money toward the Bill Gates Foundation?"

Even going back to one of the biggest philanthropy guys of all time, Andrew Carnagie, when he funded the building of over 2,000 libraries in the US, he didn't merely hand the money over to the government. He played a reverse uno card, and made local governments and universities have to apply for grants from him, and he had to approve their architectural plans and they had to commit to an operational model he laid out in order for him to hand over the money.


So there definitely are rich guys (even generous rich guys who aren't anti-government) who just flat out feel that "those guys don't know how to manage and use money very well"

 

[Belk]

The wealthy would just move their money offshore, and corporations are the tax collectors via federal withholding.

So it goes back to squeezing the working class, who cannot afford the lawyers, and tax accountants; to pay the bill.

So if the wealthy act illegally we should not try?

 

[Fantine]

But I do think some of the tax resistance is rooted in more sincere concerns about the efficiency and stewardship with which that money gets spent, and fears that it could start becoming too easy to just start spending without planning.

Charities should be deductible by gradation.
Is giving money to World Central Kitchen, who sets up in war zones feeding bombed out homeless refugees, more philanthropic than donating to a university where your descendants will be guaranteed acceptance as legacies? Or having a hospital wing named after you? Or donating to symphonies and art museums?
Maybe a World Central Kitchen donation should get 110% deduction and the symphony 90%. Building something with your name on it maybe 75%.

 

[Laodicean60]

The wealthy would just move their money offshore

Isn't this a reportable event to the IRS, and they still pay taxes?

 

[RoBo1988]

So if the wealthy act illegally we should not try?

I doubt that most of them act illegally- they just have the means to figure out the laws, to their advantage. Many of the wealthy are your Congress and Senate members, who write the very laws that they weasel around. W

 

[Belk]

I doubt that most of them act illegally- they just have the means to figure out the laws, to their advantage. Many of the wealthy are your Congress and Senate members, who write the very laws that they weasel around. W

Then moving their money offshore will have zero effect. US is one of the few countries that pays taxes no matter where the money resides. The only way to get out of it is to store it illegally in a tax haven. Perhaps, if the Republicans are serious about the debt, they should close all the loop holes in our tax system?