Federal spending has passed the point where mandatory spending -- mostly "entitlements" -- and net payments of interest on the national debt exceed income from all sources. This means that every dime spent on "discretionary" budget items -- including national defense -- is now borrowed. Since entitlement programs are unlikely to be cut without severe economic distress, any substantial increase in the cost of debt service will push Federal spending past the tipping point.
In fiscal year 2009, Federal spending on "mandatory" items plus net interest was about $2,399,000,000. Federal income from all sources was $2,105,000,000, leaving a deficit of $294 billion BEFORE anything was spent on national defense, infrastructure projects, or grants to study the sex life of hornytoads. The projections for F/Y 2011 are $2.416 trillion and $2.567 trillion, leaving a positive balance near the tipping point -- but the income numbers assume a 22.5% increase in personal income tax revenues, a 115% increase in corporate income tax revenues, and $16 billion in new revenues from health care reform. The likelihood of these rosy forecasts actually happening are slim.
Even if the increased revenues do come to pass, all bets are off if interest rates rise faster than projected. And the Feds to acknowledge that, by and by, rates will rise. Factoring in the trillion-dollar-per-year increases in national debt and increasing rates of interest, net interest is projected to rise from $188 billion in F/Y 2010 to $840 billion in F/Y 2020.
Question: Do you think the "deficit commission" might propose new taxes?
1. Yes.
2. Hell, yes.
3. Oh, yeah.
4. All of the above.