Monday, January 12, 2009

Are tax increases inevitable?

Matt Miller writes in the Wall Street Journal today that even Republicans admit that taxes are likely to rise – a lot – as the population ages and entitlements start to squeeze the federal budget.

As 76 million baby boomers hit their rocking chairs, we're poised to double the number of seniors on Social Security and Medicare. We've already got $50 trillion in unfunded liabilities in these and related programs. There's no way to make the math work at current levels of taxation.

Don't take my word for it. Listen to some of today's pre-eminent Republican budget analysts, who've told me that taxes are going up no matter who is in power. Like every Republican who aspires to serve in a public role, they've been schooled by the party's antitax police to avoid saying things too definitively, or to leave themselves an "if we only got tough on spending" escape hatch. We know this spending talk is a charade, though, because Republicans balked at trimming a few teensy billion from the next trillion in planned Medicaid outlays when they controlled every corner of Washington a few years ago. So there's no mistaking what these folks are saying.

Miller's piece is good and in all likelihood he's correct.

But let's ask again, are tax increases inevitable – meaning, not just likely, but wholly necessary? As I see it, we could significantly limit the need for tax increases if only we did two things:

First, if every American should save responsibly for retirement. If we all did that, then Social Security could serve as a backstop for those who are so poor that, even if they did save, wouldn't have enough for a decent income in retirement. As it stands, Social Security isn't just about helping out the poor, it's about providing retirement incomes to people who could easily provide them for themselves. That may be affordable today, but it won't be in the future.

Second, if the American health system's efficiency were improved to match the best programs around the world. While there are many ways to skin the cat and there's no reason we need to have the same health approaches as other countries, U.S. health care is, some argue, uniquely inefficient.

As the budget is squeezed I have no doubt that Americans will start to save more on their own and that U.S. health care will become more cost-conscious. But the key would be to start doing these things before we go bankrupt – a soft landing is better than a hard one.


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