More Complex Tax Math: If Lower Brackets Excluded, Draconian Rate Hikes
Required to Attempt to Bring USA Inc. Budget Into Financial Balance
Current Federal Income Tax Rates vs. Rates Needed to Reduce Deficit to 3% of GDP in 10 Years
100% © ee
80% --- ee 7T7T%_- = u Current Federal Income Tax Rates ”n £ O Marginal Tax Rates Required to Balance USA Inc.'s Budget* 60% oO e wo £ 8
Ca = ° 33% £ 28% 28% oS 25% 25% i
20% i i a
10% 10% Tier 1 Tier 2 Tier 3 Tier 4
Note: *The tax math presented here are pure mathematical illustrations — it is simply calculated to measure how much tax rates need to increase (for the top two income brackets) to achieve a deficit-to-GDP ratio of 3% by 2019E assuming a baseline budget path and relying on personal income tax rate hikes alone. These calculations are merely mechanical illustrations and are not meant to portray realistic solutions.
ource: The Urban Institute (Desperately Seeking Revenue, By Altshuler, Lim and Williams, Si The Urban Institute (D tely Seeking R By Altshuler, Li ct Willi 1/5/2010. www.kpcb.com ne. at Might a Turnaround Expert Consider? B kpeb USA Inc. | What Might a T dE Consider? 397
Pros + Cons of Tax Rate Hikes
e Amore progressive income tax system could lower tax burden from potential subsidy cuts and carbon taxes on the low-income population.
e Addressing income inequality may enhance perceived fairness — and political chances — of comprehensive deficit measures.
Across-the-board tax rate increases would hurt nearly everyone, but especially lower-income taxpayers.
Rate increases on upper brackets usually spur tax avoidance, and revenues often fall short of targets.
Rate increases, which discourage savings, amplify distortions in the economy from tax subsidies, exclusions and tax expenditures, all of which encourage consumption.
KP www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 398
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