The Coming Nickle and Dime Tax Approach
The last two years have seen an economic meltdown that has been the equivalent of being splashed with cold water while sleeping. To get out of it, the federal government has been spending money like mad. At the same time, states have been going broke. Sooner or later, the bill is going to come due and that means higher taxes.
There is no disputing the economic mess of the last two years has been a real eye opener. We have learned much from it, but it is important that we keep an eye on the big lessons most of all. One is the simple fact that although we need the government to spend to stabilize things, our overall debt situation is simply out of control.
This is not a political issue. The debt has been building for years through Republican and Democrat Presidents and Congresses alike. The current total debt is currently over 11 trillion dollars. That’s a lot of money, but the projections for the total costs of paying Medicare for this generation alone are simply staggering. The total cost? 61 Trillion dollars. It is estimated that by 2025, just 16 years from now, every third dollar of income tax will go to pay for Medicare. By 2035, the figure is 45 percent. This is just Medicare. It doesn’t include social security, the military or any other government debt.
Obviously, the current projections have to be addressed. The problem, of course, is how to go about it. Cutting benefits is going to happen, but the political will doesn’t currently exist to do it. You know what that means – taxes are going up. The most obvious move will be the expiration of the Bush income tax cuts in 2010. That will not come close to curing our debt problem, but it will be a start. The next step will most likely be an increase in payroll taxes, which will hit all of us.
Americans love to get riled up about the big issues. Income tax is certainly one of them. While we are all wailing away about the big issues, many small items are passed into law that none of us are even aware of. For instance, are you aware that a National ID car is now legal in the United States? Few are because it passed with little commentary. Well, the same thing is going to happen with the national debt.
The federal government is going to start passing little tax acts that seem small individually, but add up cumulatively. We are already seeing revenue desperate states do it. Louisiana, for instance, is trying to pass a 15 cent Internet access tax. A favorite is the vice tax. Kentucky is known for its bourbon, and just passed a 6 percent tax hike on buying it. Nevada is considering a $5 fee for any sessions carried out by the oldest profession, which is legal in certain parts of the state. Texas now gets $5 any time you enter a strip club! While somewhat humorous, these taxes are just the beginning of more coming down the line.
Every dollar we spend as a country comes with an invoice. Unfortunately, the bill is starting to come due. If you think things will return to the way they were once the economy is back on its feet, you are going to be sorely disappointed. The time to debate what we really need our government spending money on versus what we are really willing to pay for is here whether we like it or not. The cost of Medicare makes that readily apparent if nothing else.