Tuesday, November 27, 2012

We can't tax our way out of our fiscal problems

Maybe if we had an accurate accounting of the actual liabilities that our federal government faces, people would be a lot more concerned about fixing our fiscal problems. But we don't see reported the liabilities we face in Medicare, Social Security, and pensions for federal employees. Right now we are on the hook for $86.8 trillion for those expenses, yet they're not included in projections of our national debt. Two prominent former House members, Chris Cox and Bill Archer, report the stark truth that there is no way to tax our way out of this debt.
When the accrued expenses of the government's entitlement programs are counted, it becomes clear that to collect enough tax revenue just to avoid going deeper into debt would require over $8 trillion in tax collections annually. That is the total of the average annual accrued liabilities of just the two largest entitlement programs, plus the annual cash deficit.

Nothing like that $8 trillion amount is available for the IRS to target. According to the most recent tax data, all individuals filing tax returns in America and earning more than $66,193 per year have a total adjusted gross income of $5.1 trillion. In 2006, when corporate taxable income peaked before the recession, all corporations in the U.S. had total income for tax purposes of $1.6 trillion. That comes to $6.7 trillion available to tax from these individuals and corporations under existing tax laws.

In short, if the government confiscated the entire adjusted gross income of these American taxpayers, plus all of the corporate taxable income in the year before the recession, it wouldn't be nearly enough to fund the over $8 trillion per year in the growth of U.S. liabilities. Some public officials and pundits claim we can dig our way out through tax increases on upper-income earners, or even all taxpayers. In reality, that would amount to bailing out the Pacific Ocean with a teaspoon. Only by addressing these unsustainable spending commitments can the nation's debt and deficit problems be solved.
This is scary stuff. No wonder that so few politicians want to talk about these stark facts. But unless we address the root causes of our fiscal crises instead of relying on short-term band-aids, we'll never come close to fixing our problems.

We can't even get an honest discussion of how big the problem is.