The current deterioration in the budget deficit would suggest that 2009 could be a banner year exceeding the $1.85 trillion forecast by the Congressional Budget Office (CBO).  In fact, some pundits are now suggesting we could see deficits in the range of $2-2.5 trillion.  A recent study by PWC consulting suggests:

“Long-term thinking isn’t easy to come by these days. Given the current economic environment, the near-term focus is understandable—but it may also prove to be dangerous. As bad as our economic situation is right now, it could get a whole lot worse in the next decade and beyond. If left unchecked, the mounting US deficit—forecast to be as high as $2.1 trillion this fiscal year—has the potential to seriously damage the national economy and threaten the ability of businesses to compete in the global marketplace.”

The reality is that the US is on a spending spree and the only way to close the gap is through a combination of lower spending, reducing increases in existing programs and higher taxes.  Yes, higher taxes!  During the last week, we have seen Washington legislators float the idea of a Value Added Tax (VAT) on a national basis.  These taxes would be applied to all goods and services and result in a further tax burden while also complicating the tax code to reduce the regressive nature of such a tax on low income earners.  In addition, we also heard recommendations to tax existing health care benefits provided by employers to their employees.  The funds generated by this tax would be used to pay for universal healthcare for everyone – all the while creating a rationing system for the rest of us as well!

Finally, the “cap and trade” tax on carbon based fuels is another big bonanza for the government.  The administration is even polling for this idea to create a new naming convention “cap and pay”.  The latter makes it seem like someone else is doing the paying! It is instructive to note that a Chinese company is going to make Hummer’s because they think it is a good business and besides, no one in China complains about having an SUV – as if these vehicles were alive!  And while the Sierra Club opposes nuclear, our “dear leader” has stated that Iran has the right to nuclear energy to support its energy needs!  What?

These discussions have all been taking place in the media and throughout the administration in developing tax strategies to fund Obama’s projects, close the budget deficit, create universal health care, drive us to using smaller cars and less energy and essentially reduce your current liberties, as restricted as they have become, even further.  The aforementioned strategies by our legislators are interesting to say the least.  First, you overspend, create huge deficits and then declare we can’t sustain such actions.  Essentially, you gorge yourself on the excesses of spending, find out that the discomfort is remarkably painful and then declare you need to solve the problem – usually by shoving a finger down your throat but in this case, shoving taxation down yours!

You see, it’s somewhat like that very cute movie, Gremlins, where a cuddly little creature spews out fur balls that then mutate into a terrifying group of saboteurs and wreak havoc throughout the town.  Our government is like that now.  We find that local congressman or senator who we vote into office, they go to Washington and mutate into the biggest tax and spend pork barrel creatures this nation has ever seen. And so far, no one has come to the rescue to put them back in the box!  Unlike the original movie, we are told to keep looking at the cuddly little guy at the top and see that he has a good heart and truly wants to do the right thing!  The problem is we have a Harry Reid and Nancy Pelosi who foment the further mutation and perversion of our government “gremlins” and then like the antagonists in the movie, revel in the destruction! 

Essentially, they and the administration have figured out that if you distribute enough spending throughout the economy, create an entire class of people who depend on that largesse, and create the view that it is all for the common good, you can do what you will with taxes.  So, now we find ourselves tethered to an impossible outcome where the taxpayer will simply have no choice but to “feed the beast”.  The strategy is clear and the swiftness is unparalleled in the history of our nation.  And the result so far, platitudes and the main stream media’s new “positive” campaign!

Yet there are warning signs.  The yield curve in government debt is accelerating, oil is up nearly twenty percent, mortgage rates are increasing due to long term rates trending higher and the employment picture continues to show the loss of over 500,000 jobs a month.  And this is hope and change?  And what does the future look like?  Simply stated, servicing this debt will become the largest component of the government’s (read your) responsibility in the future!

                                       Gap between growth in federal spending and revenue, 1962–2082

                                       Note: 2007 to 2082 are projections under CBO’s Alternative Fiscal Scenario.
                                       Source: Long-Term Budget Outlook, CBO, December 2007, and supplementary data from CBO

So where does this lead us?  The fact is that we will have higher taxes. The question is how high and across how much of the economy.  If higher taxes result in further stagnation, than the diagram above will be the “conservative” view.  But if, and this is a big if, we can reduce spending, take out some of the entitlement mentality that currently exists in our nation, we at least can mitigate some of the tax burden that will ultimately be paid by younger tax payers.  Oh, and on this point, if you are concerned about whether we can get young people interested in the dialogue, let them see this graph!  Better yet, get them to explain it to you and see how they are enjoying the direction of the administration. 

Ultimately, we need to get everyone who opposes this scenario to be involved and to make their voices heard.  This is not a discussion about income tax, carbon tax, fair tax, flat tax, VAT or redistribution policies, but the real decisions that will be necessary to reverse this trend while at the same time balancing the current entitlement mentality too prevalent in our nation.   You see, even the young idealists will have to worry about the accelerating debt service in the future; because, many of us won’t be around to watch!