MoneyListening to Bush and his Republican loyalists complain about the added $35 billion to ensure SCHIP for 10 million children, you have to wonder what would happen if the Democratic Party proposed a new government program — never mind what it covers — that had a 10 year cost of $2.4 trillion, and without any way to pay for it?

The $2.4 trillion, of course, is the latest forecast from the non-partisan Congressional Budget Office of the costs of the Iraq and Afghanistan wars through 2017, ($1.9 trillion for Iraq) including interest. When Democratic Representatives Jim McGovern and David Obey suggested a surtax to pay for the war, rather than burden future generations, his idea got a few denunciations but more nervous silence, if not panic, from Republicans.

Still, I was wondering what kinds of tax increases would be needed to pay for George Bush’s war, and yesterday, Charlie Rangel gave me a rough idea. As Chair of House Ways and Means, Rangel has been working on what he calls “the Mother of All Tax Reforms,” an effort to reverse the Bush Administration’s massive wealth transfer from the poor and middle class to the wealthiest Amercans. That wealth transfer increased the number of Americans in poverty while robbing the middle class of most of the increases in national wealth and incomes that, instead, flowed to the rich and super rich. From Robert Reich (h/t TexBetsy), who worries we won’t have the courage to fix this:

New data from the Internal Revenue Service show that income inequality continues to widen. The wealthiest 1 percent of Americans earn more than 21 percent of all income. That’s a postwar record. The bottom 50 percent of all Americans, when all their wages are combined, earn just 12.8 percent of the nation’s income.

Yesterday, Rangel released more details of his proposed tax plan, amidst horrific howling from the Republicans, because it would effectively increase taxes for the very richest Americans by about $1 trillion, while providing the equivalent tax relief to everyone else. Naturally, the Republicans only mentioned the increase part in their denunciations, did not mention whose taxes would go up and whose would go down, and promptly labeled this the “mother of all tax increases.” As Digby always says, ______ ____ ___ __.

Still, it’s illuminating to take each one of Rangel’s proposals to see what it takes to raise $1 trillion. [Assuming the description of Rangel's plan is for a ten-year period . . .] if we add up each of these increases, and multiply them all by 2.4, we can piece together a different tax package that might be needed to pay for our $2.4 trillion unfunded wars.

Rangel wants to give middle class married couples another $850 standard deduction and give more low-income people tax credits, while increasing child care credits. He also wants to repeal the Alternative Minimum Tax, a big item, which keeps surprising upper-middle income tax payers because it’s not indexed to inflation. Most folks seem to agree on at least that proposal. Note all these benefits go to the middle class or the near poor, but Rangel would also reduce the corporate tax rate from 35% to 30.5%, and there are other corporate tax shifts from one type to another. So it appears that most corporations would not pay for the middle class tax cuts. Who would?

Rangel’s a Democrat, and Democrats since Bill Clinton have applied “pay as you go,” meaning Rangel needs to find tax increases to offset these tax cuts. Here’s Rangel’s list:

– a 4% increase in income taxes on those earning over $200,000.

– a 4.6% increase in income taxes on those earning over $500,000 (couples) or $250,000 (single payers).

– taxing the “interest” earned by hedge fund managers and others as regular income instead of capital gains = an additional $26 billion.

– eliminating off-shore tax havens for hedge fund managers = an additional $23 billion.

There are other measures, but those are the big ones. You can see the largest portion of revenues would have to come from the 4% and 4.6% increases on those with the highest incomes. So if that’s what gets you close to $1 trillion, then as a very rough first estimate, we would need to more than double these rates, which means doing at least the following to pay for George Bush’s war:

– Increase income taxes by about 8% for those making more than $200,000
– Increase income taxes by about 9.2% for those making more than $500,000 ($250,000 for single tax payers)
(For comparison, $2.4 trillion equals $8,000 for every person in America.)

I can’t think of a single reason not to do this. Of course, if you wanted to pay for both the war and tax relief to the middle class and near poor, you’d have to increase those rates by another 4% to 4.6%, and if you want universal health care — we’d have the mother of all battles.

Related posts:

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  3. Democratic Health Care Holdouts Worry the Rich Are Taxed Too Much
  4. Excise Tax on “Cadillac” Health Insurance Benefits is Regressive
  5. Costs of Iraq, Afghanistan Wars Proving Unsustainable