The coming catastrophe

Solving the debt crisis requires both cuts and taxes — do we have the stomach for it?

Scot Lehigh
The Boston Globe

THE ADVICE was meant for the folks tackling the toughest job in Washington, but the American public needs to hear it as well.

This week, Rudolph Penner and Robert Reischauer, both former directors of the Congressional Budget Office, briefed the National Commission on Fiscal Responsibility and Reform about the challenges they’ll face in finding ways to cut the federal budget deficit to a sustainable level.

That task is so difficult that some fear it can’t be accomplished in today’s polarized Washington. Len Burman, the former director of the Tax Policy Center and now a professor at Syracuse University, worries that little will be done until calamity looms…

…Oddly, says Penner, who led CBO from 1983 to 1987, foreigners tend to be more optimistic that the United States will summon the resolve to fix the problem. In his remarks to the panel, he used a Winston Churchill quote to sum up the mood he finds abroad: “You can count on Americans to do the right thing after they have tried everything else.’’…

…the basic math of budgeting dictates that the problem be addressed on both the spending and the revenue side.

“The magnitude of the required adjustments is so large that spending cuts will have to affect programs we all care about and benefit from, and revenue increases will have to come from a wide swath of Americans,’’ said Reischauer, who considers himself a fiscal conservative with liberal values. “In other words, raising taxes on the rich or corporations, closing tax loopholes, eliminating wasteful or low-priority programs, and prohibiting earmarks simply won’t be enough.’’…

…If we simply tax our way out of the problem, Penner said, the total federal tax burden would increase by 50 percent by 2040.

Assuming income tax rates rose in tandem until the top rate took half of an upper earner’s income, we’d also need a value-added tax that ramped up to 7.7 percent by that date. Further, Social Security and Medicare taxes would also have to rise….

The entire article is at The Boston Globe.

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