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Raising Taxes Without Raising Tax Rates

Monday November 22nd, 2010   •   Posted by Craig Eyermann at 3:23pm PST   •  

Your Money, in the Government's Vice! How can the government increase the amount of money it collects in taxes without increasing tax rates? Or rather, for politicians looking to remain as blameless as possible when their constituents get their new, higher tax bills, how can they make it look like they’re not increasing taxes when they’re taking more in taxes?

Here, Damian Paletta of the Wall Street Journal provides the answer being considered by the commission President Obama established to propose solutions for eliminating the annual federal government budget deficit by 2015, which turns out to involve doing away with popular tax breaks like the mortgage interest deduction and child tax credits:

Sacrosanct tax breaks, including deductions on mortgage interest, remain on the table just weeks before the deficit commission issues recommendations on policies to pare back with the aim of balancing the budget by 2015.

The tax benefits are hugely popular with the public but they have drawn the panel’s focus, in part because the White House has said these and other breaks cost the government about $1 trillion a year.

At stake, in addition to the mortgage-interest deductions, are child tax credits and the ability of employees to pay their portion of their health-insurance tab with pretax dollars.

It’s rather alarming to read that the government views the relief it provides income earners from its imposed taxes as being such a huge cost. “Why, if not for these trillion-dollar tax breaks we’re giving away,” they seem to argue, “we would have a balanced budget!” Then again, as far as the government is concerned, it’s not really your money that you earned through your work to make your life and your family’s lives better. It’s the government’s money, and they know better than you how to spend it.

The good news is that the MyGovCost calculator considers this approach to sticking taxpayers with higher tax bills, without being taxed at higher rates. The calculator already assumes that anyone earning more than $250,000 per year will see any tax breaks they might have today above that level disappear altogether. The calculator also assumes that even though tax rates are likely to rise, the value of tax breaks that would otherwise increase in step with those higher tax rates will instead be frozen at current levels, increasing the impact to individuals on at least two different levels.

The only problem is that even with those changes, the federal government still won’t be able to balance its budget, because the spending that they know better than you how to do will go up even more!

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November 2010