[soul searching]

...says Bruce Bartlett in the last issue of Fortune:

The $250 Billion Tax Trap
Taxes are going up next year, no matter who wins the presidency in November.

By Bruce Bartlett

A piece of advice for voters during the presidential campaign: Don't believe what either guy says about taxes. George W. Bush's line is, "I'm a tax cutter and Kerry isn't." John Kerry's message: "I'm fiscally responsible and Bush isn't." Ignore it. It's all smoke. All you really need to know—and you tax-abhorring, Bush/Cheney pin-wearing conservatives, pay attention—is that taxes are going up next year, no matter who's elected in November.

It's hardly a shocker to say taxes will go up under Kerry (he's a liberal, he's from Massachusetts, etc.). But Bush? Yes, even him. In fact, neither will have a choice: There are several inexorable pressures at work that make higher taxes inevitable.

The first pressure—which is Bush's own doing—is high federal spending. On top of Iraq and homeland security, Bush has massively increased outlays for education and agriculture, and refuses to veto countless pork-barrel projects sent to him by a Republican Congress. He also rammed a vast expansion of Medicare for prescription drugs through Congress that will cost at least $534 billion over the next decade.

Second, all of Bush's tax cuts expire in coming years. In other words, taxes are programmed to rise automatically in the absence of legislative action. And legislative action will be slow in coming with a rapidly rising deficit.

Third, federal revenues are now at their lowest level as a share of GDP since the early 1950s. In the postwar era, revenues have averaged about 18% of GDP, which appears to be a kind of tax-burden equilibrium point. Whenever that share has gone much higher than 18%, taxes have been cut, as was the case when revenues reached 21% of GDP in 2000. And whenever the share has dipped below equilibrium, there have been tax increases, as was the case in the 1980s, when Ronald Reagan signed major tax increases in six of his eight years in office. With revenues currently at 16% of GDP, experience predicts we're due for a return to the mean, which means a tax increase of 2% of GDP, or about $250 billion per year.

But all that is crazy talk as far as the Bush administration is concerned. Indeed, many conservatives pooh-pooh the need for deficit reduction, period. They argue that interest rates and inflation fell to their lowest levels in decades even as the deficit rose sharply, which is true (so far). They also point to budget projections showing deficits falling as a share of GDP. But those projections assume that Bush's tax cuts will expire on schedule. So in effect this argument assumes the low-taxes/big-deficit problem will be solved by ... higher taxes.

Another conservative hope is that the deficit will force spending cuts, not higher taxes. This is naive. Every major deficit-reduction package of the past quarter century has relied principally on higher revenues; those signed by Reagan erased half of the 1981 tax cut by 1988. Even if Bush were inclined to reduce spending, there aren't anywhere near enough discretionary cuts to be made to solve the problem. Yes, revenues will rise as economic growth lifts profits and wages, but again—not enough.

Some conservatives suggest that, supposing a big tax increase is inevitable, why not let Kerry do the dirty work, and brand Democrats for all time as the high-tax party? And as long as Congress stays in Republican hands, we'll see a return to "gridlock," which kept spending under control during the Clinton years and led to budget surpluses. That argument is too clever by half. Even if Kerry wins, Republicans can't walk away from the budget, since they're likely to control Congress next year. And gridlock works only if the fiscal house is in order. Otherwise, gridlock means paralysis.

So what would a President Kerry do? Though he claims he's the more fiscally responsible candidate, don't bet on it. His tax increase, for example, wouldn't reduce the deficit but would finance still more government health benefits. He's also promised hundreds of billions in new spending, as well as tax cuts for the middle class.

For those who genuinely care about deficits, the growing size of government, and the looming fiscal crisis when baby-boomers start retiring in a few years, this election won't offer much of a choice. Both candidates are going to be forced by circumstances to deal with the deficit, and higher taxes will be a key element. They should be debating how best to raise revenues rather than pretending the issue can be avoided.

That isn't a plea for more taxes. As a conservative, I've spent 30 years trying to cut them. But anyone who thinks we can overcome our fiscal mess without higher taxes is in denial. Like it or not, higher taxes are coming.

[olePigeon]

Originally posted by soul searching:
...says Bruce Bartlett in the last issue of Fortune:

You mean cutting taxes even more won't stimulate the economy, increase jobs, and stop offshoring?

[brachiator]

As well taxes should! A reversal of the most recent cuts, for certain, at least on the $200,000/yr crowd. An increase on that crowd is in order, as is an increase in the corporate rate, cap gains and the elimination of most tax avoidance schemes. Fer chrissakes, GOP, there's a war on!

[Zimphire]

We will see.

[brachiator]

Zim has an interesting point -- or at least I am taking it as such. Regardless of the need to raise taxes, it is likely that if reelected Bush will not raise them, because to do so would be contrary to his ideology.

After all, the gang in power now are the "starve the beast" reactionaries, who consider it their mission to so cripple the US gov't with debt that there will be no choice but to cut social services and law and regulatory enforcement. Their leading light, Grover Norquist, not too long ago advocated the violent destruction of the US Gov't by this means, admitting that his goal was not to abolish government, but to shrink it down to the size where he could drag it into the bathroom and drown it in the bathtub.

[Zimphire]

My point was "No one really knows, so we will see"

Not what you were inferring above.

[demograph68]

So if this is true, then all in all, we're ****ed?

[brachiator]

Originally posted by Zimphire:
My point was "No one really knows, so we will see"

Not what you were inferring above.

Ah, sorry! I'd thought you were being cryptic there.