We're not going to be able to tax-the-rich our way out of this deficit

James Choi was an illustrative post up on his "quasi" blog in response to Warren Buffet's op-ed in today's NY Times about taxing the mega-rich. Key message:

Suppose we imposed a 100% tax rate on people making more than $1 million a year, and let's pretend that they wouldn't generate any less taxable income in response. (In reality, they would of course stop working altogether or hide their income in response to a 100% tax, so the government wouldn't be able to collect all that income.) 

The government would then collect $727 billion from these people, which would be $549 billion more than it actually did. That would still not be enough to eliminate the $1.65 trillion federal deficit in 2011. 

This is why Obama's so-called millionaires and billionaires tax hike proposal would have raised taxes on AGIs starting at $200,000 a year for singles and $250,000 a year for couples. There just isn't enough money available in the $1 million+ segment to close the deficit. 

And this is why any deal that ultimately balances our budget will have to at least partially hit the upper-middle class (which I loosely define as households that make more than $50,000 a year, which is the top 36 percentiles), either through tax hikes or benefits cuts.