Wednesday, July 13, 2011

Why we will have a tax hike

According to David Leonhardt:
Not so long ago, nobody was talking about tax increases or Medicare cuts, and the federal budget seemed to be in fine shape. If only we could get back to the past — get spending under control, as the cliché goes — we’d be O.K. The debt ceiling, with its harsh finality, offers the chance.

Unfortunately, this nostalgic view depends on a misunderstanding of the budget. It imagines a budget in which the United States indefinitely has the world’s highest medical costs, its largest military, an aging population and, nonetheless, taxes that are among the world’s lowest. Economists have a name for that combination: a free lunch.

Free lunchism is ultimately the problem with the no-new-taxes pledge that so many politicians have adopted. A refusal to raise taxes, no matter how principled, cannot take us back to the good old days. It would instead lead to a very different American society. For taxes to remain where they are, Washington would need to end Medicare as we know it, end Social Security as we know it, severely shrink the military — or do some combination of the above.
The only ones who enjoy a free lunch are the richers because they found a way to make you pay for it.

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