More Complex Tax Math: If Lower Brackets Excluded, Draconian Rate Hikes Required to Attempt to Bring USA Inc. Budget Into Financial Balance Current Federal Income Tax Rates vs. Rates Needed to Reduce Deficit to 3% of GDP in 10 Years 100% © = = Current Federal Income Tax Rates 72% g O Marginal Tax Rates Required to Balance USA Inc.'s Budget* BIN mm = me a ee me a m= sn = = me = A nae me = et lp < © wa £ E 40% 33% aad s 28% 28% 3 25% 25% L 20% ~-— 1% 15% OR oR PODER 10% 10% | » AU Tier 1 Tier 2 Tier 3 Tier 4 Note: *The tax math presented here are pure mathematical illustrations — it is simply calculated to measure how much tax rates need to increase (for the top two income brackets) to achieve a deficit-to-GDP ratio of 3% by 2019E assuming a baseline budget path and relying on personal income tax rate hikes alone. These calculations are merely mechanical illustrations and are not meant to portray realistic solutions. Source: The Urban Institute (Desperately Seeking Revenue, By Altshuler, Lim and Williams, 1/5/2010. (@)) www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 397 Pros + Cons of Tax Rate Hikes e Amore progressive income tax system could lower tax burden from potential subsidy cuts and carbon taxes on the low-income population. e Addressing income inequality may enhance perceived fairness — and political chances — of comprehensive deficit measures. e Across-the-board tax rate increases would hurt nearly everyone, but especially lower-income taxpayers. e Rate increases on upper brackets usually spur tax avoidance, and revenues often fall short of targets. e Rate increases, which discourage savings, amplify distortions in the economy from tax subsidies, exclusions and tax expenditures, all of which encourage consumption. (@)E) www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 398 HOUSE_OVERSIGHT_021040