Taxes: the Political Suspension of Disbelief

Nobody likes taxes.  They’re a pain in the ass, and they’re never, ever going to to away.  The IRS filing deadline is today, so I thought it would be appropriate to talk a bit about it.

Soon the United State is going to have a bond auction of Treasury bills, and we’ll have a fiasco.  Nobody’s going to want to buy them at low rates, and suddenly, the cost of financing debt in the United States is going to skyrocket.  It doesn’t matter what Moody’s or Fitch does, what matters is the prices that markets yield on long-term debt offerings backed by the federal government.  For now, we can issue debt at relatively low costs, but that present scenario has about a year or two left (or less) before it dies.

Right now, the fundamental problem our federal government faces when it comes to money is twofold: We spend too much, and we don’t take in enough.  Some of this has to do with the economy collapsing in 2008, and tax revenues continue to lag behind where they’d otherwise be if the economy had never contracted so deeply.  Some of this has to do with the fact that the GOP insists on blocking any and all legislation that would raise more revenue (raise taxes), as evidenced by the failure of the ‘Buffet rule’ in Congress today.  Democrats have signalled willingness to compromise on budgetary and taxation issues, but the fact of the matter that they simply cave whenever they enter negotiations with Republicans and then are unable to secure a meaningful deal is a failure on their part.  Both parties are fundamentally playing a long-term, high-stakes game of ‘kick the can,’ one in which politicians of both parties are either unwilling or unable to craft a sensible and realistic policy concerning what the federal government takes in terms of revenues, and what it spends in the form of budgetary expenditures.

We can avert the Debt Apocalypse that I outlined above.  The policy that we need is going to be a combination of tax hikes and spending cuts.  You can’t balance the budget with just one of the two options.  It’s not politically feasible.  The policies are there, the plans have already been drafted.  What we’re utterly and completely lacking is a sense of urgency about the issue.  At this juncture, for the country to avert a debt crisis, we have to balance the budget, and we have to do so much sooner, rather than later.

But what’s preventing this is politicians who aren’t willing to act.  Republicans are nuts and Democrats are weak.  What it’s going to take is for members of Congress to take a chance with their careers, and do the right thing, rather than worry about getting reelected.

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