Felix Salmon of Reuters says that The Times’s deficit puzzle did not let him tax the rich as much as he would have liked.

In general, the NYT options on both the spending-cut and the tax-hike side tend to hit the poor and the middle classes more drastically than the rich; what’s missing here is the option to implement something much more progressive, in both senses of the word.

As we noted in Sunday’s newspaper, the puzzle obviously does not contain every possible option for cutting the deficit. There are dozens of potential options for each subcategory; taxes can be set at different rates with different thresholds, for example, and Medicare and Social Security each could be changed in many ways.

Partly for the sake of clarity, we limited our list to a handful of possibilities within each category. Immediate political feasibility was not a requirement – if it had been, our list would have been extremely short and you probably wouldn’t have been able to fix the deficit with the available options. But eventual political likelihood did affect our decisions.

Still, even within these limitations, the puzzle contains a lot of ways to raise taxes on the rich. For starters, you could let the Bush tax cuts expire on income above $250,000 (and given all the deductions that people claim in order to reduce their income for tax purposes, this change would primarily affect households making a good bit more than $250,000). That would represent real money: roughly a 2 percent cut in annual income, on average, for any households subject to the tax, according to the Tax Policy Center.

Then you could enact the millionaires’ surtax, which imposes a 5.4 percent surtax on income above $1 million. This tax was included in the House’s original version of the health-reform bill, but it did not become law because the Senate did not pass it.



Additionally, you could also restore the estate tax to the structure it had under the Clinton administration. The tax would then raise more than twice as much money as under President Obama’s estate-tax proposal and more than five times as much as under one oft-discussed Senate proposal, known as Lincoln-Kyl. At the same time, you could restore taxes on capital gains and dividends to their levels under President Clinton, as Mr. Obama has proposed.

You could also restrict the number of deductions that high-income households take. And you could begin subjecting some income above $106,800 to the payroll tax. And you could reduce the future Social Security benefits of high-income households.

Finally, you could impose our hypothetical bank tax. It would raise about seven times as much money as the bank tax proposed by the Obama administration earlier this year (which did not become law). The vast majority of the tax would ultimately fall on the affluent, because bank executives and major bank shareholders are quite affluent.

If you chose all of these items, you would sharply raise taxes on households with very high incomes.

In all, you’d get about $570 billion of the $1.3 trillion in needed deficit savings for 2030 – or 43 percent – through taxes or benefit cuts applying to a very small share of the population. (Households making $250,000 and above comprise about 2 percent of the population; the Social Security changes would affect a somewhat larger group, while the estate-tax changes and the millionaires’ tax would affect a smaller group.)

The argument for an approach like this one is simple enough: Over the last three decades, the rich have received by far the largest pretax raises of any group, even in percentage terms, and have also had their tax rates fall more than those for any other group.

As a result, post-tax income for the rich has soared, while post-tax income for the middle class and poor has risen only modestly, after adjusting for inflation.

Mr. Salmon is absolutely correct that it’s possible to raise taxes on the rich even more, and he lists some of the possibilities, like a wealth tax and complete removal of the ceiling on the payroll. Even so, the options for taxing the rich in our deficit puzzle, taken together, would represent a major policy change.