I have been wondering over the last year or so how grown, educated, intelligent men charged with running our country could run up these huge deficits will little apparent concern.
Honestly. It's patently insane.
The Congress under President George W. Bush ran up a pretty impressive $450 billion deficit during his last year in office.
But these new guys - while decrying the horrible deficit they "inherited" - managed to triple it in their first year - $1.6 trillion. And it looks to be in the range of $1.2 trillion in the next fiscal year.
The total national debt sits at $12.8 trillion. The U.S. is spending $202 billion a year on interest payments to the holders of that debt - China, Japan, Germany, bond holders, et. al.
Compare that to the annual budgets of NASA, $19 billion; education, $53 billion; or transportation, $73 billion.
And amid this sea of red ink, what became the administration's No. 1 priority? An enormous, budget-busting health care program. Don't believe the nonsense about the health care plan reducing budgets. Anyone with a working knowledge of budget scoring, Congress and the Congressional Budget Office knows better.
So I'm thinking, how can these guys keep ignoring this mountain of debt?
Well, I'm starting to get the picture.
Americans this past Thursday may have filed federal income tax returns representing the lowest taxes they will ever see again.
All the experts say big tax increases are inevitable, including the likely implementation of a European-style "value-added tax."
What a VAT does is levy a tax on goods at each stage of production. It's not added on at the point of purchased, like a sales tax, so it remains transparent to consumers - sort of.
It works like this.
Businesses pay the tax on their purchases and collect it on their sales. After deducting the taxes they paid on purchases from the amounts they collected on sales, businesses remit the difference to the government.
It's a highly effective way for the government to raise money. Each 1 percent of VAT would raise about $100 billion. So a 10 percent VAT would have the potential to raise $1 trillion a year.
But it would also drive up the price of goods because you know who will end up paying - the consumer.
All along, even talking about imposing a VAT was universally avoided by politicians.
But now, one of President Obama's top economic advisers, Paul Volcker, said last week that the idea of a VAT was not as "toxic" as it used to be around D.C.
Obama's budget chief Peter Orszag immediately went into damage-control mode and told the Economic Club of Washington that Volcker was not speaking for the administration.
Basically, what Orszag was saying, is that Volcker inadvertently told the truth.
Enter Douglas Elmendorf, director of the CBO. He told reporters he's already told his staff to figure out how a VAT would work. Nobody requested this analysis, mind you, but the CBO has to anticipate all possible policy options, you see.
Interestingly, the Senate went on record Wednesday as being overwhelmingly opposed to a VAT. They voted 85-13 to approve a "sense of the Senate" resolution calling a VAT a "massive tax increase that will cripple families on fixed incomes."
Don't buy it. It's our only way out of the mess our government has created.
A recent survey by the Brookings Institution outlined the tax-the-rich scenario it would take under current spending trends to bring the deficit to just 3 percent of gross domestic product. (The survey didn't say balance it. It said reduce the deficit to 3 percent of gross domestic product.)It would require a nearly 80 percent marginal tax rate on the most successful earners. If taxes are raised across the board, the marginal rate would rise to nearly 50 percent for the top earners, with state and local tax burdens bringing it up to 60 percent.
And even at that, the deficit still isn't under control.
Do you think Congress is going to pass the draconian tax increases and program cuts necessary to bring the deficit under control?
No way.
I could be dead wrong about this. But if I was a betting man, I'd take even money that a VAT and the resulting increase in the cost of goods is coming - and soon.
And Obama's already proposing boosting the top individual tax rate from 35 to 40 percent and juicing the capital gains rate.
No doubt in my mind. Some very taxing times are ahead.
