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FORMER ROMNEY ECONOMIC ADVISOR: Yes, Middle Class Tax Rates Might Have To Be Hiked Too
Former Mitt Romney economic advisor Greg Mankiw admits something that he probably would never have said during the campaign: Middle class tax rates can’t be set in stone. They might have to rise, too.
In a column at the NYT, Mankiw argues that if we’re going to get real about connecting spending to revenue, and if we want to keep (for the most part) the level of entitlements we’ve come to expect, some kind of tax increase on the middle class will be necessary.
Ultimately, unless we scale back entitlement programs far more than anyone in Washington is now seriously considering, we will have no choice but to increase taxes on a vast majority of Americans. This could involve higher tax rates or an elimination of popular deductions. Or it could mean an entirely new tax, such as a value-added tax or a carbon tax.
In making this argument, Mankiw also pushes back on the argument that the current tax code lacks sufficient progressivity. As we pointed out earlier this week, the main reason liberals want to raise taxes on the rich is not that it will make a huge dent in the deficit (it won’t), but that higher taxes on the rich are a partial corrective to extreme income inequality. Mankiw isn’t buying that:
In 2009, the most recent year for which data are available, the richest 1 percent of Americans paid 28.9 percent of their income in federal taxes, according to the Congressional Budget Office. (That includes income taxes, both individual and corporate, and payroll taxes.) Members of the middle class, defined as the middle fifth of households, paid 11.1 percent of their income in taxes.
These data suggest that the rich are not, as a general matter, shirking their responsibilities to support the federal government. To me, the current tax system looks plenty progressive. Others may disagree.
The fact that that the 1% contribute such a large percentage of the Federal tax haul is a fact frequently cited by conservatives who argue that the system is anything but lacking in progressivity. But to some extent this is an ex-post way of examining the question.
Evan Soltas points out that this inequality of contribution is mostly a phenomenon of income inequality:
And it is so because of increasing income inequality. As income inequality has increased, and a larger share of income goes to the top, the share of income tax revenues which come from the “volatile top” has also increased. The graph of the share of income taxes borne by the highest incomes has increased just in the same way that their share of income has increased.
Regardless, the bottom line is that although Mankiw’s point initially seems unconservative (taxes might need to rise!) it’s certainly in keeping with the opposition to more tax code progressivity, or using the tax code as an inequality corrective.