Let’s Raise Taxes on the Middle Class

Serious base-broadening will require a net increase in the tax burden on the middle class, which benefits hugely from the biggest tax breaks.

Throughout the recent presidential election campaign, we heard President Obama and Republican candidate Mitt Romney blast one another for allegedly wanting to raise taxes on the middle class, which they defined as households making less than $200,000 per year. And we heard each candidate repeatedly promise not to do so. One of the only things the two candidates appeared to agree on was that raising taxes on the middle class is a bad idea.
That might be true if you’re trying to be elected president. But from a tax policy perspective, raising taxes on the middle class is a terrific idea.
Raising taxes on the middle class is a necessity given the enormous fiscal gap facing our country. While that gap will have to be closed primarily by cutting entitlement spending, increased revenue will also need to be part of the solution. And it won’t be possible to get all of the money necessary from those making more than $200,000 per year. As Alan Viard, my colleague at the American Enterprise Institute, has documented, observers across the political spectrum have recognized that tax increases on the top 2 or 3 percent won’t be enough to close the fiscal gap.
It seems that presidential campaigns are not a good time for difficult conversations about fiscal consolidation. But the campaign is over now. So, to kick off that difficult conversation, let’s start by examining some basic principles of tax reform. What changes can and should we make to bring in more revenue?
One way to boost revenue is to increase tax rates. But high tax rates can impose large costs on the economy by discouraging not just work, but also entrepreneurship, education, and saving. Fortunately, there’s a better way to increase revenue: broaden the tax base.

Read more: http://www.american.com/archive/2012/november/lets-raise-taxes-on-the-middle-class