Don’t raise top tax rates.

I just don’t believe most people think we should raise the top income rate above the current 35%.  All of the examples given are of the super rich, like Warren Buffet and Mitt Romney, who earn millions each year and pay a total tax of between 15% and 20%.  This is the unfair situation that most people think of and most politicians describe when they ask the rich to pay their fair share.  Maybe the easiest way to fix this problem is to revamp the Alternative Minimum Tax.  Why can’t we simply tax all earnings over $250,000, no matter the source, at the maximum 35% rate?  This would include interest earned on tax exempt bonds, dividends, capital gains, carried interest, and any other type of income that is otherwise tax exempt or taxed at lower rates.  It that doesn’t generate enough revenue, then start taking away itemized deductions based on income.  If need be, take away all itemized deductions.

The idea above presumes that we need to increase revenues (taxes) to help solve our deficit problem.  Of course, the biggest cause of our problem is that spending has increased too rapidly.  So, the biggest part of the solution should be to reduce spending.

The chart at the link below shows clearly that our deficit problem is due to uncontrolled spending, not that revenues (taxes) are too low.

Chart showing the history of federal revenues and federal spending:  http://www.heritage.org/federalbudget/growth-federal-spending-revenue

One way to help reduce our deficit.

To solve our government spending deficit problem, we must mostly reduce spending.  But, increasing revenues by closing unfair tax breaks for politically favored businesses or individuals is a reasonable part of the solution. We do not need to raise tax rates.  We do need to make sure that all similar types of income are taxed at the same rate.

One of the unfair tax breaks is the 15% income tax rate on “carried interest.”  Hedge fund managers not only charge a fee based on a percentage of assets under management, they also may get a bonus if they are successful in their investment results for their customers.  For example, they might get a bonus of  20% of the profits, if any, when profits are taken on an investment.  Under current law, it is called carried interest and is taxed at 15%.  In any other business, they would call it a bonus and tax it as earned income – at the full income tax rates of up to 38%.  This is one of the unfair tax breaks that needs to be ended.