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Caution: Tax Increase Ahead, Regardless of Political Rhetoric

Others became public last week. In separate reports, the Project on Government Oversight said the inspectors general at many federal agencies donít have adequate budgets or staff to do their jobs properly, and the Federal Aviation Administration doesnít have the resources it needs to properly review the quality of the spare parts being used by the airlines. In other words, the FAA isnít doing its job, but the IG canít find out.

This is not pork-barrel spending: No one is talking about an impossible-to-fathom bridge to nowhere. They are not programs that can be questioned on a philosophical basis. For the most part, these are as close to pure public good activities as you get and things we count on the government to provide because no one else will.

Another clearly federal responsibility ó military spending ó is also very likely to rise significantly in the years immediately ahead. Even if there is no long-term U.S. presence in Iraq and Afghanistan (which supposedly will cost between $20 billion and $30 billion a year), the cost of retaining people in the military and recruiting new ones to replace them when they do leave will be substantial. Similar personnel-related increases will be needed for the National Guard and reserves.

Other military programs will also increase. The best example is military health care, which, as the catastrophe at Walter Reed Army Medical Center demonstrated, had been dramatically underfunded even before the casualties from Iraq and Afghanistan put an overwhelming additional burden on the system. This burden will soon have to be borne by the Department of Veterans Affairs, which didnít have anything close to adequate health care resources before activities in Iraq and Afghanistan began.

Then thereís the alternative minimum tax. As sure as anything can ever be in politics, AMT will be fixed so that in the next few years it does not begin to apply to millions of Americans who consider themselves middle class. But it will be expensive. Fixing the AMT could increase the deficit more than all of the spending increases that will be seriously considered on the domestic and military sides of the budget ó combined.

Interest on the national debt, the last part of the equation, will also be growing in the years ahead. Not only will the amount of government debt continue to increase, but the average interest rates paid may well rise from current levels as the debt from the past few years is refinanced.

In much the same way that weíre still guessing about how much gasoline prices have to rise before Americans start changing their driving habits, we donít know how high the deficit can go before it starts to be a political problem that canít be ignored. We also donít know when, because of actual or expected inflation, a large deficit will be considered the wrong fiscal policy. And we certainly donít know when the current overseas appetite for U.S. bonds, bills and notes, which has been making it possible to avoid rising interest rates in this country, will end.

But my guess is that weíre a lot closer to one or all of these than most people running for office want us to believe.

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