>"Don’t Tax You, Don’t Tax Me, Tax the Fellow Behind the Tree"

>This paper by the Peter G. Peterson Foundation is better written than I could state, but it’s an idea that I’ve been rolling around in my head for two years.

Back when my parents were young, the US Government decided to build a national highway system, improve public schools, invest in infrastructure, send a dozen humans to the moon, pay for a war in southeast asia, etc. They were free to make those spending choices because the federal budget was for the most part discretionary. At the time (1965), 66% of the budget was discretionary, and 34% was mandatory. The federal budget share of the economy was about the same, and the deficit was about the same as today.

Today’s budget picture is very different. Counting Medicare, Medicaid, Social Security and Interest on the debt, “mandatory spending” is 62% of the federal budget, and is expected to grow to be 100% of current revenues (as a share of the economy) within 20 years.

This means that our current generation of taxpayers is paying taxes for items that were chosen in past decades and will continue automatically.  The current budget picture means that the elected government cannot set priorities that are needed for today’s problems. 

The problem I see is that our democracy reacts to inflection points or crises.  This will look like a long, slow decline, as mandatory spending either increases our deficit, decreases our current investments in infrastructure, or increases our taxes to higher and higher levels.  As we increase the deficit, our currency value may decline or interest rates may increase.  As we reduce our investment in infrastructure, our economic growth may decrease.  And higher taxes will reduce workers’ disposable income.  It doesn’t look like there will be a sudden crisis where you can point to that date or week as a call to action.  At best, we might have our foreign creditors decide to stop lending us money.

We need to figure out the intergenerational compromises needed to make sure that older generations are taken care of, while allowing current generations to set spending priorities on today’s needs.

The Boomers that I am closest to are genuinely concerned about future generations’ economic prospects.  I hope a critical mass develops that will take a hard look at this issue.

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About perkinsms

I'm an engineer and father interested in transit, parking and economics.
This entry was posted in budget, economics, entitlements, fiscal, government, health care, politics, rights, social security, spending, tax. Bookmark the permalink.

2 Responses to >"Don’t Tax You, Don’t Tax Me, Tax the Fellow Behind the Tree"

  1. Mark says:

    >”A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury.”

  2. Michael says:

    >The cool part is, it wasn’t even our generation that voted for this. It was the older generations voting for future largess from the public treasury.I like the way we borrowed money (for tax cuts, military spending, you name it), said “we” would pay “ourselves” back, then we wait a generation so the definition of “we” would change to a different generation altogether.”Ourselves” didn’t change, though.

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