Some sobering facts to absorb on the nation’s parlous fiscal condition:
1. According to the Congressional Budget Office, we have a budget deficit of $714 billion for the first six months of fiscal year 2010.
2. Naturally, this is unsustainable, and will require a serious shift in national priorities:
Federal Reserve Chairman Ben S. Bernanke warned Wednesday that Americans may have to accept higher taxes or changes in cherished entitlements such as Medicare and Social Security if the nation is to avoid staggering budget deficits that threaten to choke off economic growth.
“These choices are difficult, and it always seems easier to put them off — until the day they cannot be put off anymore,” Bernanke said in a speech. “But unless we as a nation demonstrate a strong commitment to fiscal responsibility, in the longer run we will have neither financial stability nor healthy economic growth.”
His stern lecture came as the economy is emerging from the worst recession in years, sending the stock market up considerably over the past year and raising public hopes for a return to prosperity. But the economic downturn — with tumbling tax revenue, aggressive stimulus spending and rising safety-net payments such as unemployment insurance — has driven already large budget deficits to their highest level relative to the economy since the end of World War II. This has fueled public concern over how long the United States can sustain its fiscal policies.
For whatever reason, we simply did not hear enough of this during the health care reform debate. Now, on top of the deficits that have already been incurred, a new entitlement has been added. To paraphrase a rather famous bumper sticker, if you are not terrified out of your mind, then you haven’t been paying attention.
3. The Obama Administration is now considering raising taxes. One tax under consideration is a value-added tax. I could get behind a VAT if it were accompanied by significant tax cuts in corporate, personal, and capital-gains taxes; we might be able to broaden the base while reducing individual tax burdens, and still combat the deficit. But how many people really think that the Administration will use this opportunity to pass a comprehensive and constructive tax reform package? After all, it has shown no propensity thus far to be responsible in the field of economic policy.
4. And make no mistake, taxes are already going up:
Families earning more than $250,000 and individuals making more than $200,000 will not only pay new healthcare-related taxes, but also face the likely expiration of upper-income tax cuts enacted under President George W. Bush. As a result, these Americans could be tapped for about $650 billion in additional taxes over the next 10 years — a prospect that is loaded with both political opportunity and peril.
Of course, it will not be possible to make a serious dent in the budget deficit by merely raising taxes on upper-income Americans. As such, others will see their taxes raised as well.