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Originally published September 16, 2011 at 3:03 PM | Page modified September 16, 2011 at 3:19 PM

Three areas to mine new tax revenue: the superrich, municipal bonds, mortgage-interest deduction

The Seattle Times editorial board offers three suggestions on ways to increase federal tax revenue.

quotes As long as Washingtonians block industry, remove resources from development, put... Read more
quotes Just put the tax levels back to the Clinton levels and put spending back to the same... Read more
quotes The only way to sustainably increase taxes is to have a growing economy, where more... Read more
THIS page is wary of tax increases, especially those that penalize investment in job-creating companies during a recession. Still, if the federal government is to reset its spending, it may have to reset some taxes.

We offer three ideas.

First, the superrich. Most rich people pay their taxes. Between an adjusted gross income of $500,000 and $10 million, the average taxpayer pays 25 percent in federal income tax, which is higher than any other group. Above $10 million, however, the average tax drops to 22 percent.

It should be more. Set it at 30 percent by increasing the rate on capital gains and dividends at that level, ending the carried-interest rule for hedge-fund managers and lessening the ability of the superrich to hide their money in tax-exempt foundations.

A 30 percent average rate on the $10-million-plus group would raise about $20 billion a year.

Second, make the income from municipal bonds taxable. This tax break, which costs the Treasury $31 billion a year, makes it easier for local governments to borrow. It also creates a way for bondholders to have tax-free income.

But there is no pressing need to favor owners of municipal bonds over other lenders. Nor is there a need to entice local governments to borrow more than they otherwise would.

Third, limit the mortgage-interest deduction to the interest on the amount borrowed to buy the property, and limit it to one residence per individual or couple — $750,000 tops.

The mortgage-interest deduction costs the Treasury $106 billion. Limiting it could reclaim a part of that money without hurting the average American's ability to buy a home.




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