Forbes Magazine had a great article by William Baldwin explaining the addiction to debt by everyone from the Federal Government on down to Joe Sixpack. Politicians get elected by handing out entitlements that the “future generation” has to pay for, therefore, no new taxes need be imposed and the voters are kept happy; Joe Sixpack can buy his house with no money down and instead of saving for a downpayment can buy the new plasma TV and jet off to Cancun for the weekend; the ultra rich hedge fund operators and bankers can leverage up 40 to 1 and exponentially increase their net worth. Up until now this has worked like magic and no one, except for a few fiscal conservatives, worried about the mountains of debt building up at every level of society. As is the case with most trends that go to unimaginable extremes, all of a sudden it does matter in a very big way. Properly enough, the ones who incurred the most debt are now suddenly suffering the most from hedge fund managers facing liquidations requests and job loss to Joe Sixpack receiving his default notice to towns, cities and states suddenly facing massive deficits as the great credit machine implodes.
Here’s where it gets really interesting as the bills come due and the debts can’t be rolled over. Governments cannot cut back due to the nature of democracy; no will vote for someone who tells us what we need to hear – that the bills are due and we now have two options – drastically cut government services or dramatically raise taxes to pay for our past purchases. The option previously used on every occasion was to simply borrow more to pay the bills but, as we saw today, when you can’t borrow more it gets very ugly, very quickly.
Ironically, a few pages after the article by William Baldwin on out of control debt levels, we have the “Taxed to the Max” comment about a ballot initiative that will be voted on in Massachusetts which would eliminate the state income, wage and capital gain taxes which currently brings in the State of Mass over $12 billion a year. After a decade of stagnant wages, increased cost of living and maxed out credit cards it is going to be political suicide to convince the taxpayer that he needs to start paying on the mountains of debt that have piled up. How this problem is ultimately resolved will profoundly affect all of us for many years and there is no easy way out. How many people will accept a much lower standard of living and higher taxes to bring our debts in line with our ability to repay? I fear that as usual, the politicians will take the easy way out and try to continue to borrow until they can’t. The real big question is, short of simply printing the money, do we still have the ability to borrow and roll over our debts?
Taxed to the Max
Massachusetts is often referred to as “Taxachusetts” because the state’s taxes are so high. Now the Committee for Small Government wants to change that image by pushing legislation called the Small Government Act, which Bay Staters will vote on in November. The legislation repeals the state income, wage and capital gains taxes. That’s a $12.5 billion state revenue cut–with no other revenue to replace it. That reduction would force state legislators to seriously rethink their financial priorities. But it would also leave that money in the hands of families, where it will surely be better spent. Bostonians were once brave enough to tell England–and the world–that taxes were too high. Now let’s see if they have the courage to tell their own legislators.
–Merrill Matthews, Institute for Policy Innovation