Still, the counter argument to the above is -- with a likely current-year budget deficit of $1 trillion, and another around that total next year, fiscal 2010, how can one not think about raising income taxes?
It won't happen this year -- almost all Obama administration and Congressional energy has to be dedicated toward fiscal stimulus and related programs to get the U.S. economy moving again -- but after GDP growth resumes, 'the great tax debate' will start.
Washington's tax chess board
The fault line: probably $100,000 per year -- even though the Obama administration has stated that their goal is a tax decrease for everyone except those earning more than $250,000 per year. (Selected tax increase exemptions would apply for certain small business owners above the $250k level.)
Further, if history is any indicator, the real battle may not occur until the $300,000 level. The reason? The $100,000 level represents a sizable income for citizens/couples for most of the nation, but because the income tax debate is shaped by elected officials and lobbyists who -- you guessed it -- are earning $300,000 (or more) a year, look for those policy makers to structure the debate.
In other words, if you deduce from the above that the nation's income tax policy is basically a battle between those citizens earning $300,000 who don't mind paying a little more in federal income taxes (mostly Democrats) and those $300,000 earners who do mind (mostly Republicans), you're basically correct.
So when you're watching the debate, whenever it occurs, use this prism to gauge the support for a tax proposal: Where do the $300,000 movers-and-shakers stand on this tax change?
Tax Policy/Economic Analysis: The early read on future tax policy? One can not raise taxes with a U.S. economy that's barely registering pulse. Heck, if there was some guarantee that the money would lead to investment at home, job growth, the nation should cut taxes in half for upper-income groups until the U.S. economy has resumed a sustainable growth track. Bottom line: this economy needs lots and lots of stimulus, so all sources have to be considered.
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