This Congress will adjourn in a few months, with little to show for their two years in power. One issue they have steered far away from is the growth of entitlement spending. The Congressional Budget Office has recently responded to a request from Congressman Paul Ryan (R-WI) for specifics on how much taxes will need to be raised if entitlement spending isn't curbed:
With no economic feedbacks taken into account and under an assumption that raising marginal tax rates was the only mechanism used to balance the budget, tax rates would have to more than double. The tax rate for the lowest tax bracket would have to be increased from 10 percent to 25 percent; the tax rate on incomes in the current 25 percent bracket would have to be increased to 63 percent; and the tax rate of the highest bracket would have to be raised from 35 percent to 88 percent. The top corporate income tax rate would also increase from 35 percent to 88 percent.
Such tax rates would significantly reduce economic activity and would create serious problems with tax avoidance and tax evasion.
We won't be able to tax our way out of this one.
HT: Mankiw
