I am purposefully writing about taxes this morning before I attend the live national debt and spending forum with David Walker, Warren Buffet, and Pete Peterson this evening. There is a pretty good chance I may become (if I am not already) over excited and biased by the stature of the individuals involved, and all the clever charts and animations put to music in the film that precedes the session, etc; it's just the way I am, I think it runs in the family.

Recent commentary on investment taxes got me thinking. If you have about a minute and a half, consider listening to this blip from American Public Media's Marketplace on the dividend and capital gains tax rate and what the presidential candidates want to do with them.

All of us are probably in agreement on two things:

1. Taxes are usually a bad thing
2. Taxes are a necessity to maintain a government and incent/decent behavior
   

Some of us probably know these two truths:

1. When taxes are increased, revenues by the government usually decrease due to a stronger disincentive to perform that action. For example, a higher capital gains rate will not only reduce the value of all investments by the new proposed amount, it will also provide less of an incentive to invest in the applicable taxed asset classes.
2. When taxes are decreased, revenues experienced by the government usually increase because this behavior is now further incented. Lower corporate taxes mean businesses can keep more of their money, and more profits spur more business, and thus more tax.
   

Obviously, a combination of the above is required to ensure adequate levels of current income and future growth. So here is the deal...

In relation to my recent rants, It may be time for some big shifts in how we interact with our government financially. I hate to jump on the doom statistic bandwagon, but here is the point: By 2040 the federal government may not be able to pay for anything but Social Security and Medicare. That's it. Nothing else. It's not a Republican thing or a Democrat thing, the downward fiscal slope has been propagated for decades, president after president, congress after congress, all have sat idle.

Introducing the Menu of Delayed Pain:
Ill be writing about these items in more detail tomorrow as I continue on this doom high, but for now here are the numbers. Source document from the Cato Institute here.

If we wanted to fix things back in 2003. What choices did we have?

1. Increase federal income taxes (individual and corporate) 69%
2. Increase payroll taxes 95%
3. Cut federal purchases 106%
4. Cut Social Security and Medicare 45%

Nothing was done. It's 2008. What choices do we have now?

1. Increase federal income taxes (individual and corporate) 74%
2. Increase payroll taxes 103%
3. Cut federal purchases 115%
4. Cut Social Security and Medicare 47%

Of course a lower combination of all of the above would produce a similar result. However, as we approach 2009 with no action, we may have to redo the numbers.

Tough choices. Even if the problem is only half of what has been calculated, or even a quarter, some nasty taxation and entitlement cuts are in the pipeline.

What's the point of another post on this?

I am thinking about my generation and the generation of the baby boomers......

We probably won't have many choices, but if we do, are we willing to accept some of the burden and fix the problem?

Like the Greatest Generation (those who fought in World War II and also kept the home front intact) would we be motivated and engaged enough to rival Victory Gardens, Rubber Drives, Food and Fuel rationing; this time in the financial sense of fewer entitlements and much higher taxes?
Do we have it in us?

Or have we become too entrenched in our "I deserve it, without paying for it" mentality and fight every entitlement cut, every tax, until the absolute last second before our noses enter the water. Can we forget about placing blame and stomach a change before it becomes even harder?

What will the menu look like then?

Related Post:
Things we can do to help fix the National Debt


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