The sound of inevitability: Deficits lead to higher tax rates

Interesting chart from dshort.com comparing the size and timing of deficits in the U.S. and the inevitable result: large changes in tax rates to try to stop the bleeding:

This makes TONS of sense, especially when you combine it with the government's non-stop pushing of tax-deferred accounts for retirement. People will sure feel stupid when they find themselves paying 40-50% tax rates (fed) plus some serious state taxes on 401K and IRA monies they set aside at a time when tax rates were 20-30%.

Don't feel smug if you have your money in Roth IRAs, either. I predict a means-based test for whether or not these withdrawals are truly tax-free. It's not paranoia if they're really out to get you.

Quick Link: Get Ready for Increased Taxes

In our personal lives, when expenses exceed income, we have two choices if we want to avoid debt: spend less or make more. We don't usually have the option of "making more" whenever we want, so we learn to budget, live within our means, and spend less.

The government has the same problem (in spades!) and the same two options, and it sure looks like the Obama administration is opting to increase taxes in lots of sneaky ways rather than find any real savings:

I’ve noted any number of times that government taxes comprise 14% of the national income and government spending is at 25% of the national income.  That’s as high as its been since WWII I believe.
The point, of course is there are three obvious choices here – cut spending to the income level (and beyond, really, if you plan on paying off debt) or increase taxes to the spending level (and beyond, again, if you plan on paying off the debt) or a combination of both.
Watching this current administration, it appears option two is in the works.  Lots of lip service about “unsustainable” spending, etc., but the only movement I’ve seen is legislation that increases that.  And, also, plans to increase taxes.
The health care bill is chock full of new taxes.  If you don’t believe it, review these two listings of the new taxes to be found in there.
Cap-and-trade, and now “Son of Cap-and-Trade” being sponsored by Senators Lindsey Graham and John Kerry significantly raises taxes on utilities (which means everything will cost more for consumers).

We've gotten to the point where the big-ticket spending items are off limits, taxes are being paid by a shrinking pool of people, and an entrenched government is more interested in protecting their position and power than in governing and serving. Any wonder I'm pessimistic?

Non-Payers Grow to 36% Of Tax Filers

I had been wondering about the way that "credits" and income-limited deductions had been reducing the tax burden on lower-income individuals and families in recent years. It always felt like a strong "hockey stick" model in which taxes paid stayed relatively low until you reached a certain income and your taxes (as a percentage of income) suddenly exploded up. I'm not just talking about the progressive tax rates themselves -- I'm also talking about the various credits and deductions that get eliminated at different income levels.

Mark Perry has a great blog, and he recently posted the following charts from the Tax Foundation showing the percentage of filers who pay no federal taxes (now at 36%) and the income level at which you pay no taxes.

The statistic that bothers me the most is the rapid growth of non-paying filers to 51 million, or 36% of all filers. Add to that huge number the millions of non-filers and you've got an enormous block of people who (rightly? naively?) believe they can vote themselves any benefit or entitlement and will not pay a dime toward it.

At what point does the process become untenable, with a non-paying majority holding guns to the heads of the paying minority and demanding higher and higher levels of benefits? As the boomers retire, we may find out.