Politicians on both sides of the partisan spectrum are proposing plans to subject the wealthiest Americans to significantly higher taxes as a response to the federal government’s rapidly increasing annual budget deficits, but such proposals are doomed to fail, according to a new analysis by the Cato Institute.

“Senators Elizabeth Warren (D?'MA) and Bernie Moreno (R?'OH) propose removing the Social Security payroll tax cap, subjecting earnings above $184,500 to the 12.4 percent combined employer-employee payroll tax. Senators Chris Van Hollen (D?'MD) and Cory Booker (D?'NJ) each propose exempting more wages from income taxes at the bottom while raising taxes on higher earners. President Trump has pursued a similar strategy of expanding tax exemptions, while President Joe Biden and Vice President Kamala Harris both pledged not to raise taxes on anyone earning less than $400,000,” Cato Institute Director of Tax Policy Adam Michel explains in an August 12 analysis.

The flaw in all of those approaches, according to Michel, is that “each approach shifts more of the tax burden toward the top. One problem with this approach is that there are not enough high-income Americans to finance the current federal budget deficit, let alone fund additional spending or tax cuts.”

Also fundamentally flawed are approaches that focus on increasing the tax rate on all income above a certain level. Michel demonstrates this by examining the data for a proposal to tax 100% of all income received above $1 million in a year.

“The IRS data show that for the $1?'million-and-above group, there is $1.7 trillion in AGI above the threshold. Applying the group’s average tax rate implies they have already paid roughly $512 billion in taxes on their above-threshold income. That leaves $1.2 trillion after taxes,” Michel writes.

“If Congress confiscated every one of the remaining $1.2 trillion after-tax dollars earned above $1 million, the resulting revenue would have fallen nearly $600 billion short of covering the cost of the 2023 $1.8 trillion calendar-year deficit. Dropping the taxable income threshold to $500,000 would also have fallen just short of covering the same year’s deficit. And these estimates make the wildly unrealistic assumption that a 100 percent marginal tax rate would have no behavioral or other economic effects,” Michel said.

Put another way, according to Michel’s calculations based upon IRS tax data and the magnitude of federal spending in just one fiscal year, taking every penny earned by “the Rich” making $1 million or more in a calendar year would not come close to paying for the deficit.

Nor would extending the 100% tax rate on all earned income above $1 million for a decade be sufficient to eliminate the total deficit projected by the Congressional Budget Office (CBO). “Confiscating all income earned over $1 million would cover only about 80 percent of the Congressional Budget Office’s (CBO) projected $24.4 trillion federal deficit over the same period,” according to Michel.

In addition to failing to produce sufficient new revenues for the U.S. Treasury Department to devote to paying off federal debt that results from chronic deficit spending, such approaches would have additional negative consequences beyond those seen on IRS tax returns.

“Taxing incomes at 100 percent marginal rates is not a realistic policy proposal. Taxes significantly higher than what we have today would radically change how much people work, invest, and realize as income, as well as how much income they report to the government. The point of this exercise is to show that ‘just tax the rich’ proposals fail, even under arithmetic that is the most favorable possible,” Michel reports.

The last year in which the federal government spent less than it took in was 2001 under the last annual budget negotiated between the Republican-led Congress and Democratic President Bill Clinton, with a $128 billion surplus. There have only been four other such years since 1940, according to the Debt Clock. Clinton and the GOP Congress also agreed on budgets with surpluses in the 1998 ($69 billion), 1999 ($126 billion), and 2000 ($236 billion) fiscal years. The only other year with a surplus since 1940 was 1960, the last year of President Dwight Eisenhower’s administration, which compiled a $301 million surplus.