The Inevitability of Higher Taxes

**barbaro** · 28-08-2009, 03:05 AM

This may have fit in other places, but this thread is about: the inevitabiliy of higher taxes in the US, regardless of which party or administration is in power.

The "fiscal train" wreck noted in this article has existed for decades.

There is no way out, save eliminating or signficantly reducing entitlements.

Are higher taxes inevitable?

Obama is in a bind, given his no-tax campaign pledge. But the recession, stimulus spending, and higher interest on national debt are ballooning federal deficits, perhaps to risky levels.
By Mark Trumbull | Staff writer/ August 26, 2009 edition

Enlarge This GraphicRich Clabaugh/Staff

Higher taxes, anyone?

After an era of falling taxes, the federal government may be getting close to a change in the other direction.

This isn’t something that politicians have proposed or that the American public wants. And this threshold won’t necessarily be crossed during President Obama’s term in office. After all, he campaigned on a pledge to reduce taxes for 95 percent of Americans.

But fiscal-policy experts generally say the question is not whether US taxes will go higher, but when. Some say it’s likely that Mr. Obama will at least begin the process of reversing America’s tax cut trend. The reason: Federal deficits are on an unsustainable path, which could put the whole economy’s vibrancy and stability at risk.

Warning signs have been clear for years

This “fiscal train wreck” scenario isn’t new, of course. Just remember Ross Perot and the 1992 presidential campaign.

But the question of possible tax hikes has gained currency this summer for several reasons. Budget deficits are running at a record pace – $1.6 trillion for this fiscal year, up from $455 billion last year, the White House Office of Management and Budget said Tuesday – thanks to stimulus spending and a recession-related dive in tax revenues. Debate over proposed healthcare reforms has raised public concern about whether Obama is committed to getting the deficits under control. Meanwhile China, a key buyer of Treasury bonds, has been voicing louder concerns about the safety of the US government debt it holds.

“My guess is that at some point this administration and this Congress will have to take on tax reform,” says Isabel Sawhill, a Brookings Institution specialist on fiscal policy. In the process, “some revenue raising … will need to occur.”

It’s a difficult situation for Obama. He campaigned as a tax cutter and has started off as such – one-fourth of his $787 billion stimulus package comes in the form of tax breaks. His main pledge: no tax hikes for households earning less than $250,000 a year. “You will not see your taxes increased by a single dime,” he told voters. “Not your income tax. Not your payroll tax. Not your capital gains tax.”
Some of Obama’s top economic officials recently said it’s important to keep fiscal options open, and that “hard choices” will be required to bring down federal deficits. But then White House spokesman Robert Gibbs reaffirmed the president’s no-tax pledge.

A crisis could be catalyst to higher taxes

In this climate, some policy analysts say it will be a crisis – such as a sharp drop in the dollar or a spike in interest rates – that prompts Washington to confront the fiscal challenge.

“I’m fairly confident that will happen. I just can’t say when,” says Eric Toder of the Tax Policy Center, a nonpartisan research group.

In the past, voters and politicians alike have proved adept at supporting unbalanced budgets. It’s possible that the next few years will provide a final opportunity to delay the fiscal reckoning, before the tide of baby-boom retirements gathers force.

Treasury Secretary Timothy Geithner has defined fiscal sustainability as holding the national debt constant as a share of gross domestic product. He says that can be done by bringing annual budget deficits down to about 3 percent of GDP. That may not prove easy to do in the near term, however, let alone the longer run.

As the accompanying chart shows, federal deficits
are on track to balloon because of an aging population, medical costs that are rising faster than GDP, and a related surge in the cost of interest payments on the national debt.

Key measure: Federal spending as a share of GDP

Economists measure America’s fiscal health by comparing government spending with the overall GDP that supports it. They also look at the so-called “fiscal gap,” now estimated at about 8 or 9 percent of GDP. This refers to the magnitude of spending cuts or tax hikes that would have to be enacted today and permanently, to avoid piling larger debts on future generations. Delay will tend to make the fiscal gap larger as a share of GDP.

Obama and his team have talked about confronting this long-term challenge but so far haven’t offered concrete plans.

For reference, 9 percent of GDP roughly equals what today’s income tax provides to the Treasury. No one’s suggesting that the fiscal gap will be plugged in one step or that doubling income taxes is the right way to do it.
But that’s the scale of the problem. Many experts say it requires serious restraint of medical spending and more tax revenue.

“There is no way that we can solve the problem just on the spending side alone,” Ms. Sawhill says. “Nor can we solve it just by raising taxes on the top 5 percent [of earning households].”

Need for a deficit-reduction plan by 2011

Few economists advocate higher taxes right away, with the economy still struggling to get out of recession. But Secretary Geithner says the nation needs to have a credible deficit-reduction package in place by 2011, when he expects the economy to be on a growth path again.

Already, the Obama administration has been finding some revenue-side wiggle room. The president has moved to raise $33 billion in revenue from higher cigarette taxes. He’s supportive of a cap-and-trade plan to reduce greenhouse-gas emissions, which in some versions could amount to an energy tax. And tax code tweaks might be used to pay for some of his proposed healthcare reforms.
Sawhill says the government could secure about $1 trillion a year in new revenue while leaving tax brackets the same – just by removing layers of credits, deductions, and loopholes. Many deductions are popular, though, and it would be politically risky to get too clever about the definition of a tax hike.

Would healthcare reform make deficits worse?

Healthcare reform has provided a wake-up call for Obama. One of his core goals is “bending the cost curve,” or slowing the rate of medical inflation far into the future. But last month, one proposal that emerged as his team conferred with Congress would have extended insurance to more Americans without curbing costs.

The director of the Congressional Budget Office put it bluntly: Lawmakers so far are failing to bend the curve. Perhaps as a result, recent polls show the public growing more focused on the problem of federal deficits and taxes.

At the same time, it’s becoming economically risky for Washington to ignore the coming fiscal crunch. A dollar or interest-rate crisis may not be on the immediate horizon, but economic stress in those areas could easily emerge.

Michael Cosgrove, a University of Dallas economist, expects interest rates to rise next year as the economy recovers and governments around the world compete for investors to fund their rising debt. This could prod Congress to make some revenue-boosting tax changes in 2011, he says, once lawmakers have navigated next year’s elections. “What they do will probably be incremental in nature,” Mr. Cosgrove predicts. But taxes would then be going up, not down.

Link: Are higher taxes inevitable? | csmonitor.com

**Jet Gorgon** · 28-08-2009, 09:12 PM

Inevitable, Milkie. If it's not income tax, it will come from other means. Like the new higher taxes on smokes. Then it will be soda pop and candy, more on gas and power, heck, they'll emulate Teddy Kennedy. What did he say, if there isn't a tax on something, why not?

**barbaro** · 28-08-2009, 09:30 PM

Originally Posted by Jet Gorgon

Inevitable, Milkie. If it's not income tax, it will come from other means. Like the new higher taxes on smokes. Then it will be soda pop and candy, more on gas and power, heck, they'll emulate Teddy Kennedy. What did he say, if there isn't a tax on something, why not?

This article is not about "sin taxes," which are taxes on cigarrettes and tabacoo.

The point of the article noted the revenue vs. the outpays (payouts). The shortfall is around the corner.

The article is also not about Kennedy. Please re-read the article.

**Texpat** · 28-08-2009, 10:37 PM

Nobody believed Obama when he said no new taxes on the middle class.

Not even he believed it. It was a sham and remains a sham. His goal was to get elected. He said a lot of shit that was Hopey Changy pie-in-the-sky unattainable. Nobody was even listening.

Frankly, he would have been elected if Jesus Christ Almighty was running against him as a Republican. In retrospect, he shouldn't have made so many promises because the chix are roosting now, and soiling his squeaky clean image.

**blackgang** · 28-08-2009, 10:39 PM

It doesn't matter if Kennedy was mentioned or not, it means that taxes will have to be raised, and if there is no tax on something then demos will put one on it, and new taxes are not a good thing as then new committees have to be formed and new people hired to take care of that item and tax so it has to have a slot created for it, and is money wasted if you need to raise money then raise the existing taxes, not start new ones.
Tex, there ain't no mddle class no more, there is the upper class and then us down below.
And for damn sure the working class is going to see a tax increase.

**barbaro** · 28-08-2009, 10:48 PM

Originally Posted by Texpat

Nobody believed Obama when he said no new taxes on the middle class.

Not even he believed it. It was a sham and remains a sham. His goal was to get elected.

Absolutely.

Even before the "banking meltdown" and global downturn cutting taxes (and cutting spending) was a thing of the past.

Both Obama and McCain played to the low-info voting block - and you need this block to get elected.

Don't talk about the serious issues, many of which are too set to be dealth with: focus on taxes, cutting taxes,

and one of the biggest myths and lies of all: job creation.

**helge** · 28-08-2009, 11:27 PM

Originally Posted by Milkman

and one of the biggest myths and lies of all: job creation.

Well, that could become reality in the near future.
Have you seen you import- export balancesheet lately ?
I do not know how much you take in on patent,franchise etc, or if your multinationals pay their taxes at home,but the numbers do not look good.
So there is only producing or saving ahead of you. And producing something the world want to buy. Can't tax a man out of work.
Or go protectionist

**barbaro** · 28-08-2009, 11:48 PM

Originally Posted by helge

Originally Posted by Milkman

and one of the biggest myths and lies of all: job creation.

Well, that could become reality in the near future.
Have you seen you import- export balancesheet lately ?

I do not know how much you take in on patent,franchise etc, or if your multinationals pay their taxes at home,but the numbers do not look good.
So there is only producing or saving ahead of you. And producing something the world want to buy. Can't tax a man out of work.
Or go protectionist

I'm a neophyte on the Import-Export balance sheets.

Are you referring to the Current Account (Trade) deficit?

The tax number don't look good? Or the I-E balances?

TIA.

**Ramatender** · 29-08-2009, 01:50 AM

Without getting into the technical econometrics its kinda like a big cake.

owever the barkeepers friends used to have all the big slices.
Democratic elections based on being alive sooner than property qualification means the large unwashed will demand more pie akaTRTism
Siam has solved these dangerous simutaneously Democratic and Republic eanings with Nepotism Cronyism and genteel corruption backed by injustice no justice or expensive jus tits as Podgy mam discovered.
The then Quandry

Tax sin and prepare for more pay or morish foreplay as the magic hand of the market ensures the holders of junk pensions and Ninja mortgages leap to the tocsin.
How to lever the pizza suckers and Bucket of chicken folks run for the welfare stamps

**barbaro** · 29-08-2009, 02:47 AM

Some more info on why taxes in the US will have to be raised, and entitlements, in some manner will have to be reduced by possible stricter means testing and raising the age and eligibility requirements.

Why the deficit will raise taxes

The nation's debt must be brought to heel, and doing so will require tough choices beyond spending cuts, experts say.

NEW YORK (CNNMoney.com) -- A $9 trillion federal deficit over 10 years may be too hard to comprehend. But this part is easy: Such unwieldy amounts of debt could have an impact on Americans' bottom line one way or the other -- if not tomorrow, then the day after.

The U.S. government has been spending a great deal more than it has been taking in, and it is on track to do so well beyond the next 10 years. It has been borrowing money to make all that spending possible and it has to pay the money back with interest. How, you ask? By borrowing more.
The solution is straightforward if unpleasant: Shy of finding a fairy willing to leave trillions under Uncle Sam's pillow, lawmakers will have to raise taxes and cut spending.

The more the country lives on a credit card, the more it makes itself beholden to the demands of its creditors -- many of which are overseas. The danger is that buyers of U.S. debt could become concerned that the country is running too high a balance. If so, they will demand higher interest rates -- thereby making the country's debt problem worse -- or they'll put their money elsewhere.

At that point, things would get ugly.

"Taxes would rise to levels that would make a Scandinavian revolt. And the government would not be able to provide anything but the most basic public services. We would no longer be a great power (or even a mediocre one), and the social safety net would evaporate," tax policy expert and Syracuse University professor Len Burman wrote in a recent op-ed cheerfully titled "Catastrophic Budget Failure."

Link: Why the federal deficit will raise taxes - Aug. 27, 2009

**helge** · 29-08-2009, 03:09 AM

Originally Posted by Milkman

I'm a neophyte on the Import-Export balance sheets.

Me too; just had a look at it

Originally Posted by Milkman

Are you referring to the Current Account (Trade) deficit?

Yes

Originally Posted by Milkman

The tax number don't look good? Or the I-E balances?

The I-E. I no nothing to zero about your taxes; only know that you have taken a beating like most of the world, with freefall exports and employment. So apart from the rich who can you tax really, if you do not create the jobs ?
Do you have any numbers or persentage about the patent etc take ? Would it be included in export ?

Originally Posted by Milkman

TIA.

Que ?

**barbaro** · 29-08-2009, 03:20 AM

Ramatendor and Helge thanks for the answers to my Q'a and the comments.

Helge, tax revenue in the US is down because of the lack of jobs, higher unemployment, and less spending, and investment of capital, etc.

TIA = Thanks in advance.

**blackgang** · 29-08-2009, 10:02 AM

Originally Posted by Milkman

Helge, tax revenue in the US is down because of the lack of jobs, higher unemployment, and less spending, and investment of capital, etc.

How in the hell are you going to create jobs and improve export when Clinton and every pres since sent all our mfg. offshore and south so there is no more mfg capacity in the US except cars and most of the parts come import.

Repub and Democrat alike has exported all the jobs with shit such as NAFTA and imported 12.5 million mexicans into the country to support and sent the jobs to mexico to feed her self with.

**barbaro** · 29-08-2009, 01:40 PM

^ I agree, BG.

Clinton, those before him - and those after him - all have advocated and practiced sending jobs overseas.

American business and American govenment have been trying and actually doing this - for decades.

Now, we are reaping what they have sown.

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