TODAY IS THE BEST TAX DAY OF YOUR LIFE
April 19, 2010
People may look back nostalgically on tax day 2010 and those of earlier years because, almost certainly, taxes are going up in the future, and they may go up a lot. With hindsight, tax day 2010 may seem almost dreamy, says columnist Robert J. Samuelson.
For starters, almost half of U.S. households are not paying any income taxes on their 2009 earnings, says Samuelson:
- The exact figure is 47 percent, says the Tax Policy Center of the Urban Institute and Brookings Institution.
- The personal exemption and standard deduction, combined with the child tax credit and the Earned Income Tax Credit, shield many poor and middle-class families from the income tax.
That is one pressure for higher taxes. However, it is peanuts compared to the real threat: An aging America. As almost everyone knows, the huge baby boom generation is edging -- or collapsing -- into retirement, says Samuelson:
- Its first members, born in 1946, turn 65 in 2011, when they will qualify for Medicare.
- Some have already taken Social Security as early as 62 at a reduced rate.
Boomers collecting benefits, combined with uncontrolled health costs, are the underlying engine for rising federal spending and endless budget deficits. To politicians, there is at least one obvious solution: raise taxes. How big a tax increase would be needed to close the gap? Well, huge, says Samuelson:
- To put things in perspective, all federal taxes (income, payroll and excise) averaged 18.1 percent of gross domestic product (GDP) from 1970 to 2009.
- Under the Congressional Budgets Office's assumptions about Obama's policies, taxes in 2020 would already be slightly higher, at 19.6 percent of GDP.
- On top of that, there would need to be a further tax boost approaching 33 percent to balance the budget, because spending is projected at 25.2 percent of GDP.
This would be the largest tax burden in U.S. history, even including World War II. Therefore, the lesson for tax day 2010 is simple: Enjoy it while you can. It is not going to get any easier, says Samuelson.
Source: Robert J. Samuelson, "Today Is the Best Tax Day of Your Life," Newsweek, April 15, 2010.
Browse more articles on Economic Issues