Here’s a Dirty Little Secret: Your Taxes Will Be Raised

blr-editor | November 13, 2011 | Comments (0)

"There'll be no new taxes!!"

Truth and politicians appear to have only a tenuous relationship these days, it seems.

The case in point is the current ideological cage fight about taxes vs. “no new taxes”.

The reality is that setting ideology to the side for one moment, it really is clear to all sides of the political divide (yes, including Republicans in their private moments of clarity) that taxes must, and will rise – significantly too.

Any other position is simply posturing for a that simple segment of the electorate that fails to understand economic fundamentals. So here’s a quick primer:

The US National Debt is about $14.3 trillion (yes, trillion with a ‘t’)
This represents over 100% of our GDP (120% brought Ireland and Portugal to their knees)
The Federal budget deficit will be about $1.4 trillion in 2011
The Treasury Department spent $454 Billion on debt interest payments in FY 2011. Compare this to the $31 Billion spent on the Department of Education for the entire fiscal year.
We have two (collectively trillion dollar) wars in Afghanistan and Iraq. Mercifully, the Iraqis have saved us from ourselves by sending us packing this year.
Health care spending in the U.S. now accounts for 17.6% of GDP, a figure that could grow to 26% by 2035 if current trends continue

Our debt is not just large, it is massive and the Republican argument that we actually need more tax cuts ” to “spur growth” is simply foolish pandering. If they really believe it, it is just foolishness.

We have said here that Republican obstructionism will continue to block tax increases, but have no fear, the market will legislate for us sooner or later.

Did you notice what just happened in Italy and Greece? The market created their legislation in a couple of weeks by making it impossible for them to borrow. So there, we now see tax increases and cuts to government programs.

Do you so believe in “American exceptionalism” that you think this can never happen here? Good luck to you living in your bubble.

With healthcare costs exploding, trade and government deficits impossibly high, it is not a matter of whether, but when taxes are raised (and by who – us or the markets).

My advice is: prepare for that eventuality now. Create and grow your savings, retire debt and watch for deductions that will likely be curtailed such as charitable contributions and mortgage interest.