The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (

TheStreet

) --

In a recent article,

I suggested five revenue-raising measures that would yield $573 billion annually and significantly cut the U.S. budget deficit.

Earlier,

I suggested legalizing drugs, and I estimated that would yield an additional $32 billion a year.

In short, while government expenditure cuts will have to be made, tax increases can also play a significant deficit-reduction role. But what should be done about the Bush tax cuts? Read on.

The 2001/2003 Bush Tax Cuts

In the 2001/2003 period,

Bush got a series of tax cuts

through Congress. In retrospect, the timing could not have been worse. As indicated in Table 1, Bush inherited a government surplus from Clinton. Even with tax cuts of $55.2 billion in 2001, the government still ran surplus of $128 billion that year.

But timing is often everything. The September 11 attacks on the U.S. led to the Afghanistan Invasion (Oct. 7, 2001), and that was followed by the Iraq Invasion on March 19, 2003. From 2001 through 2007, the accumulated government deficit was $$1.55 trillion and the Bush tax cuts were $1.26 trillion. In short, the Bush tax cuts amounted to 81% of the government budget deficit accumulated over that period. How much better it would have been if these cuts had been held off until the end of 2008 when they could have been part of the government stimulus to end the recession!

The U.S. Income Tax Base -- Some Facts

How is the income tax base distributed among taxpayers? Table 2 provides the data.

The table shows what the tax base is (in bil. US$) by income level, where Quintile 1 is the lowest 20% of U.S. income recipients. It also provides a more detailed breakdown of the top quintile. This breakdown is relevant to the current political debate. Obama talks about not extending the tax cuts for the wealthy, where wealthy are defined as persons earning $250,000 or more. $250,000 does not sound like all that much if you have children going to private schools and colleges. But remember, Table 1 represents the tax base after exemptions, deductions, etc. I would guess the $250,000 earnings would work out to a tax base of $191,000. So figure Obama is talking about higher taxes on the top 5%, a tax base of $4 trillion.

Distribution of Tax Cuts

Who has benefited from the Bush tax cuts? This information is provided in Table 3.

The information is clear and unequivocal. Measured by total tax reductions, per taxpayer, and as a percent of taxpayer income, the Bush tax cuts favored the rich.

The Obama Proposals

Obama is proposing to end the Bush tax cuts for single taxpayers with incomes of $200,000 and up and married taxpayers with incomes of $250,000 and up (for details,

see Hungerford

). It is estimated this would generate $678 billion of new revenues over 10 years, or approximately $70 billion a year.

Summary

The Obama proposals have been incorporated along with my earlier proposals in Table 4. The annual figure for Obama's proposals have been reduced by $20 billion because my proposals already included increasing taxes on capital gains and dividends.

Increased revenues of $656 billion would help. But let's wait until 2012. Perhaps by then, we can be confident that the U.S. economy is emerging from the recession.

Elliott Morss is an economic consultant and an individual investor in developing countries. He has taught at the University of Michigan, Harvard University, Boston University, among other schools. Morss worked at the International Monetary Fund and helped establish Development Alternatives Inc. He has co-written six books and published more than four dozen articles in professional journals.