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Caution: Tax Increase Ahead, Regardless of Political Rhetoric

Itís becoming increasingly clear that, at some point after the current economic difficulties fade into history, Congress and the White House are going to have to face up to the need to increase federal revenues.

This is not, of course, what the candidates are saying. But electoral politics is almost completely irrelevant. The situation will be the same regardless of who is elected president and which party controls the House and Senate.

This is hardly breakthrough analysis. Budget analysts and economists of practically every political persuasion have been saying for years that this will be the case if federal spending isnít cut.

And it hasnít been. So letís do some Q&A.

Wonít the budget problem be taken care of by higher economic growth? It will, but only if you believe the economy will grow faster for a much longer period than it has ever grown before.

But as former Treasury Secretary John Snow repeated so often when he was in office that it sounded like his mantra, isnít the federal budget situation ďmanageableĒ? Yes, but only if you mean the problem will explode after you leave office so it will be someone elseís responsibility. It was the politics of the budget rather than the budget itself that Snow meant could be handled.

And isnít the current deficit at or below some arbitrarily selected historical average, so we donít really have anything to worry about? Thatís absolutely true, as long as you ignore the fact that the additional annual government borrowing is on top of federal debt that is already much higher than it was during that arbitrarily selected period. Itís also true only if you focus on just this year instead of looking ahead to what we know is coming in the no-longer-distant future.

Whatís directly ahead? Itís no secret that Medicare will be a huge, growing and politically explosive budget issue in less than a decade. But thatís not even close to the only problem.

The steady series of what now must be considered actual or potentially catastrophic failures of federal public protection and safety programs over the past seven-plus years makes it obvious that substantial additional spending will be required in a number of agencies. The Federal Emergency Management Agency is the most obvious example. But others, like the Food and Drug Administration ó which over the past few years admitted it hasnít had the resources needed to oversee both food and drugs ó and the Centers for Disease Control and Prevention ó which said its budget didnít allow it to plan properly for an outbreak of tuberculosis (i.e., to do its job) ó have to be included in this category.

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