Taxes? Experts Say They Must Go Up…

For those of you who believe that you can spend yourself out of debt and enjoy the same level of taxation, a little dose of economic cold water is in order, appropriately on the day after tax day.

Many economists, including some who voted for Obama, do not believe that he can indefinitely avoid imposing tax increases much further down the income scale — on the middle class.

“You just simply can’t tax the rich enough to make this all up,” said Martin A. Sullivan, a former economic aide in the Reagan administration who said he backed Obama last fall.

“Especially just for getting the budget to a sustainable level, there needs to be a broad-based tax increase,” said Sullivan, now a contributing editor at Tax Analysts publications. “If you want to do healthcare on top of that, almost certainly, it just makes [a middle-class tax increase] all the more certain.”

And toss a little “cap-and-trade” on top of that, and whoa Nellie, the sky is the limit when it comes to the taxation necessary to support all of that.

How about those that believe that taxes should be used for “income equality” (also known as “tax the rich”)?

But even economists sympathetic to tackling income inequality say it will be difficult to avoid other tax hikes.

“There’s no way we’re going to be able to pay for government 10, 20 years from now without coming up with a new revenue source,” said Leonard Burman, director of the Tax Policy Center, during a forum on Obama’s tax proposals earlier this month.

Burman said a value-added tax is “inevitable.” Burman, deputy assistant Treasury secretary during the Clinton administration, said Obama should consider using revenue from the broad-based VAT to fund his healthcare plan. That would give middle-class and lower-income people incentive to keep taxes and health costs low, he said.

Translation for those who didn’t pick up on Burman’s last point – the “incentive” provided by the VAT (or Value Added Tax) is it will discourage “middle and lower income people” from using the medical system thereby keeping “health costs low”. If you want the real short version – rationing by price, the price being the cost of a visit plus the tax. Naturally, as a percentage of income, that would hit the middle and lower income levels much harder than the higher income levels.

And that 95% tax cut for Americans?

The president’s overall tax proposals, including perpetuating most of Bush’s tax cuts rather than allowing them to expire, will lead to $3 trillion in lost tax revenue over the next decade, according to an estimate by the Joint Committee on Taxes, which provides independent projections to congressional tax writers.

So $3 trillion in lost tax revenue, but an increase in the debt and debt service requirements:

More revenue will be needed to service the growing national debt. Because annual deficits are expected to remain above $500 billion for the next decade, Sullivan expects debt payments to more than double, from about 1.2 percent of GDP to more than 3 percent.

What does that mean for that “permanent” tax cut for the 95%?

The usual:

Obama’s budget proposed that his signature Making Work Pay tax credit be made permanent, but it was not included in either the House or Senate budget blueprints, partly because doing so would have increased the size of the deficit on paper.

Lies, damn lies and “permanent” tax cuts.

All the promises are BS, folks – and that’s not because I want them to be, its simply how the law of economics works. We will end up paying for all of this fiscal profligacy somewhere in the very near future. And anyone that says differently or promises otherwise is blowing smoke up your skirt.

[Crossposted at QandO. Latest Examiner column]

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