Thursday, August 6, 2009

Read My Lips: Your Taxes Are Going Up

Your taxes are probably going up in the next couple of years. In the past, President Obama has insisted that taxes are only going up on those making more than $250,000 a year. But I don’t see how he can keep the pledge.

The government has taken on a lot of new debt to pay for the stimulus package and bailouts. There is every possibility that universal health coverage will add to that deficit unless politicians enact true cost-cutting measures in the final legislation. This is all on top of a substantial deficit left by the Bush administration. Right now, we have an $11.6 trillion deficit.

To make matters even worse, tax revenues are projected to fall by more than 18%, the steepest year over year decline since the Great Depression. This is because millions are out of work, or underemployed, meaning they have very little income available to tax. I suspect that capital gains revenues are also down as investments tanked in the last part of 2008.

Letting such a large debt go unchecked could have negative consequences for the economy. Interest rates will have to go up as investors demand higher yields on US bonds to keep buying them. Higher interest rates could make consumers less likely to take on mortgages or borrow money to start a business or even just spend. And the longer tough choices are put off, the more interest will have accrued on the debt.

To generate enough money to pay down the debt and pay for the level of government we need, the tax base needs to be as broad as possible. That means middle class and working class families will probably see higher rates. It might even mean adding a value-added tax (VAT).

All of this will be tough politically. Most people don’t like paying taxes. And the majority of voters are middle or working class. That means telling the majority of voters (who will determine if Obama gets a second term) that their taxes are too low, at a time when they feel they are already under assault from high living expenses.

1 comment:

  1. I agree with the post Marcus and I feel that you have seen through one of the imaginary promises that so many still believe. The only problem I have with this article is when you say, "To generate enough money to pay down the debt and pay for the level of government we need." The reason I have a problem with this is because the level of government is already much more than we need. As the majority of my values and beliefs fall in line with the conservative party, I will be the first to say that Bush expanded the government to levels that are not in line with true conservative beliefs. And that is why we saw such an increase in the national deficit and that is why we will see an even bigger increase in the deficit while Obama is in office.

    I believe, and history has proven, that stimulus packages, bailouts, and government run healthcare do not work. These are the major things that the government has its hand in right now that removes the "invisible hand" that our country has prospered on throughout history.

    Your fellow American,