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Gov balks at income tax increases. There is a better way.

Earlier today Governor Perdue told legislative leadership that she opposes the recent proposal to include a 2% income tax surcharge on all taxpayers as one piece of the final tax plan. One alternative to to the surcharge would be to add two additional top income tax rates that only apply to higher-income taxpayers. Case in point is the plan put forward by the House in its budget proposal that would have raised an additional $256.7 million in FY 2009-10 (roughly $50 million more than the 2% surcharge raises) by adding two top income tax brackets (8.25% for married filing jointly incomes above $200,000 and 8.5% for incomes above $500,000). Raising an equivalent amount of revenue from higher income taxpayers is better economic policy during recessions because higher income taxpayers are more likely to be able to sustain their spending levels despite the additional tax responsibility. And if good policy isn’t reason enough, consider the recent polling results from Public Policy Polling in which 60% of voters favored raising income taxes on those earning over $200,000.

In an ideal world many of the more reform-minded proposals that have been discussed this year would be part of the overall package which would actually allow for nominal tax rates to be lowered while still raising substantial revenue. But in absence of such reforms, targeting any income tax increases to those that are most able to afford such an increase is the wisest course.

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