Happy Tax Day

Our View: Federal Taxes Aren't Going Up This Year, But Look Out!

April 15, 2009

Americans hate taxes but, truth be told, these days they are more afraid of depression. So while Republicans are trying to move the masses toward tax rebellion with tea parties today in Annapolis and elsewhere intended to remind us of the pre-Revolutionary dumping of taxed British tea in Boston Harbor, they are unlikely to create much of a stir.

For one thing, many American taxpayers are enjoying a nice tax cut this year - part of the effort to spur the lagging economy. For another, people are willing to accept a ballooning federal deficit if it means saving jobs and promoting an economic recovery.

All of that said, Americans should prepare themselves for some serious tax pain in coming years. Congress needs to get very serious about cutting the deficit after the hoped-for recovery sets in if the nation is to avoid an unmanageable debt burden. Achieving that goal will likely require raising taxes and cutting the federal budget for the indefinite future.

But cutting the budget will be difficult because Americans have made it clear that they want a government that can field a strong military and also maintain popular programs such as Medicare. Yet we are not paying nearly enough taxes to support these programs. And even major changes to the health care system - the single most important step for closing the budget gap - will not eliminate the budget deficit entirely. Taxes must rise, too. This is a point on which serious Democrats and serious Republicans agree.

Higher taxes aren't necessarily bad for the economy. Economic growth has been strongest over the past 50 years in periods when the marginal tax rates were highest. But even if the current serious recession is behind us, it will be tough for President Barack Obama to propose significant new tax burdens for the middle class.

When Mr. Obama has talked about raising taxes, he has focused on households that make at least $250,000 a year. And their taxes will certainly need to go up. In the last three decades, as the pretax income of the top 1 percent of earners has soared, their total federal tax rate has fallen from 37 percent to 31 percent, according to the Congressional Budget Office.

But the president has put off executing his proposed tax increase for the wealthy out of concern for its potential impact on an economic recovery. And in the long run, the problem can't be solved just by taxing the rich. The top 1 percent pays only about one-quarter of federal taxes. Once the recession ends, taxes on the not-so-rich will need to rise, too.

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