The United States federal and state governments will be facing an unprecedented tax shortfall in the years to come. Declining corporate profits, asset values, and skyrocketing unemployment will cause the tax base to fall flat. It will most likely become evident in April of this year and get progressively worse in the years to come.
The common sense solution would be for the federal and state governments to once and for all abandon wasteful programs and departments and dramatically cut down on government expenses. Unfortunately this will not in any way be the consensus among Congress and the Executive Branch. They will see no other way out than to drastically raise taxes as a matter of “urgency” and “in the nations interest”. This bureaucratic intervention will of course do nothing but stifle growth and progress and thus have an additional adverse effect on tax receipts that will leave government bureaucrats puzzled. Since it appears as though currently tax hikes are not feasible, the government will keep trying to finance the shortfall with a progressively increasing budget deficit.
to 2003 federal tax receipts dropped from $2 trillion to $1.8 trillion, a drop of about 3.3% per year
The estimated receipts for 2008 are $2.5 trillion. It is save to assume that the upcoming tax shortfall will dwarf all precedents. But to make the outlook as optimistic as possible we shall assume a drop of just 10% per year:
Federal tax receipts will fall to $2.25 trillion in 2009, to $2 trillion in 2010, to $1.75 trillion in 2011, and to $1.5 trillion in 2012.
Meanwhile there is no indication that government expenses will fall. Even with the current, now completely obsolete, budget estimates for government expenses, the Federal deficit would develop as follows:
$850 billion for 2009 $1 trillion for 2010 $1.3 trillion for 2011 $1.7 trillion for 2012
These are very optimistic figures. It wouldn’t be surprising if actual figures turned out to be around double or triple those numbers, unless a true change in policy were to occur.
A true change would of course necessitate a complete, yet structured and well planned, abandonment of whole departments and government programs, including but not limited to Homeland Security, Education, Social Security, and Health and Human Services, along with a significant reduction of defense and military spending to sustainable levels around $100 billion per year.
1 comment:
I remember when Bush cut taxes in 2001 and 2003 I often said, "tax cuts now mean higher taxes later." Well, later is coming soon. Bruce Bartlett says that a VAT is unavoidable in the next five years.
Doc, our accumulated debt of $10T+ will require higher taxes even with stiff spending cuts. We need entitlement reform and we may just get it next year, but it will not cut costs enough to avoid higher federal receipts. I expect the reforms to merely slow the growth of spending.
What is the good news for my affluent friends? Once we return to Clinton's very successful top rates, there really isn't any more room to go up. We will need a wide, broad based tax to bring in the revenues we need. Again - this brings us to the VAT. Bartlett says it is by far the most efficient tax on the economy, creating the least drag.
Am I blaming Bush? Of course - he gets much of the blame, but not all. His failures, as well as his party's, cannot be easily dismissed or quickly forgotten. That said, the entitlement programs have represented a coming train wreck long before GWB stumbled onto the scene.
There is no free lunch, is there? Hopefully, the Republicans won't all head for the bathroom as the check arrives.
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