Tuesday, June 07, 2011

Raising taxes without raising rates

The chart at the right should offer two items of instruction on our tax system.  It is compiled from CBO data.   First, individual income tax revenue increased by 28.5% year over year without a change in rates - or with the extension of the tax cuts that the Obama Administration loves to hate.  

Second, the source of that bump comes from one major source - capital related income - capital gains and options exercises.   While that bump will produce a minor drop in deficit projections the income stream is an extremely volatile one.

That leads to a third conclusion. It you think the problem on the deficit is caused by lack of taxes (individual income taxes grew by 28.5% - certainly higher than any projections the Obama administration has offered for revenues if you raise rates - our deficit continues in the north of $1.5 trillion.  To paraphrase Bill Clinton's 1992 phrase - it's the spending, stupid!

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