to The Editor of the Seattle Times. Fixing the Federal deficit.

Your Nov 25th editorial says “the solution to multi-trillion dollar [federal] deficits has to be a mix of revenue and spending cuts . . .” Like most people, it appears you do not do math. Here it is, briefly. These numbers are from the N Y Post article of August 28, 2011. The President wants a 13% tax increase (from 35 to 39.5%) on rich people. In 2009 people reporting over $1 million in taxable income paid $200 million in taxes. Static analysis computes a 13% increase as bringing in $26 million – a bit over $2 billion per month. From other sources I believe the same analysis of incomes over $250,000 brings in some $6 billion per month. The deficit in August was $160 billion. Average for the year is expected to be roughly $130 billion per month.

So let’s see. Will $6 billion be an important part of reducing a monthly deficit of $130 billion? That doesn’t even pass the smirk test. But here is the important part. In a 15 trillion economy ($15 billion times a thousand), even a small decrease in economic activity arising from this tax increase could have much greater impact than the $6 bil a month collected and recycled by the government.

So Obama’s tax increase will have little effect on deficit reduction, but a potentially significant impact on GDP if it motivates wealth to sit on the sidelines. Of course the entire analysis assumes that you understand government recycles money but does not create jobs. If you on the other side of that assertion, then you have a lot more math to do.

Jim Hirshfield

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