The Federal budget is in the red. Democrats propose to increase certain individual income tax rates in an effort to close the gap. Will it work? History says no. Look at the graph below. It shows that revenue from individual income taxes has been fairly constant no matter what the tax rate has been. That is because low tax rates provide incentive for individuals to generate more income which generates more tax revenue. Higher tax rates do the opposite. Apparently many members of Congress are ignorant of this fact.
The federal government, with its “entitlement” programs, is committed to increased spending for social security, medicare, and medicaid. By some projections, the cost of those programs will exceed revenue from income tax in about 2052. What then?
It is unlikely that Congress will significantly cut this “entitlement” spending. Their solution instead is more taxes. Perhaps that is why there is a great effort to impose a European-style value added tax (VAT). Such a tax would expand government and raise prices on almost everything we buy. It will transfer vast sums of money from productive use to wasteful government control.
The rational thing to do would be to cut spending, particularly in the realm of government healthcare, but that is probably politically impossible, especially with the current crop of Congress people. The problem will not go away if we ignore it. There are some hard choices to be made about all government spending. It is better to plan now and begin to make those choices rather than wait for even more drastic consequences to be forced upon us.