Bruce Bartlett had a shocking article in Forbes today that every American should read. What is shocking about it is not that he maintains that taxes for all Americans will have to go up in order to cover Social Security and Medicare obligations (sadly this isn’t necessarily common knowledge), but rather that taxes will have to shoot up by 81%. Bartlett runs the numbers and makes a starkly convincing and mathematically sound case. Says Bartlett:
“To summarize, we see that taxpayers are on the hook for Social Security and Medicare by these amounts: Social Security, 1.3% of GDP; Medicare part A, 2.8% of GDP; Medicare part B, 2.8% of GDP; and Medicare part D, 1.2% of GDP. This adds up to 8.1% of GDP. Thus federal income taxes for every taxpayer would have to rise by roughly 81% to pay all of the benefits promised by these programs under current law over and above the payroll tax.”
Facts are facts. And to complicate matters the Obama administration has gone on record as the biggest spending administration in American history, creating a federal deficit of $1.8 trillion. President Obama has also set his sights on a public health care initiative that won’t come cheap. While the president rightly says we need to tackle entitlement reform, what options does he truly have? A reduction of benefits will be a hard sell, even for someone with his considerable (but waning) political capital. Privatization would be a non-starter considering the constituency that elected him. Realistically he is left with only one choice: raise taxes.
Of course, he won’t raise our taxes by 81%. He will likely be clever and do as we predicted in The Coming Train Wreck, raising corporate tax rates to all-time highs not seen since the 1970s to help cover some of the cost. But that alone won’t come close to saving Social Security/Medicare, funding his pet programs and reducing the deficit. We’ll see our taxes go up one way or another. More than likely it will be in the form of what I like to call “behavior modification” taxes, such as the tax on soda and sugar that is currently under discussion in Congress. In the interest of American health, he could get away with taxing the daylights out of all sorts of things on the federal level. But can he reach Bartlett’s 81% that way? Not a chance.
And to complicate matters further, the president promised that any American earning less than $250,000 a year would not see their taxes go up by one cent. While this is a promise he’s already cleverly broken (by allowing “behavior modification” tax hikes, such as those on tobacco products), he cannot touch our income tax rates without suffering a quick (albeit painful) political death reminiscent of George HW Bush.
So while the president can squeeze business (which in turn will cause a whole slew of separate issues for the languishing economy) and sneak in some targeted tax hikes here and there, he’s tied his own hands on income tax hikes where most of the money would presumably have to come from. This wouldn’t be that big a problem if he could keep his lust for spending and big government programs in check, but he has proven himself to be one of, if not the most, fiscally irresponsible presidents in American history; and he’s only been in office for less than five months. He will kick the can down the road to the next president, as he has frequently accused the Bush administration of doing, and hope for the best.