The Next Generation Faces a Doubling of Tax Rates; Will the 70% Tax Rate Come Back?

Michael Boskin, former chairman of the Council of Economic Advisers under President George H.W. Bush, speaks some truth when he is out of power:

The biggest future threat will be to the fruits of one's labor. The unfunded liabilities of Social Security and Medicare are now several times the national debt; the unfunded liabilities of state and local governments for pensions and other benefits are in the trillions of dollars and mounting. The panoply of other government programs nonetheless continues to expand. The result, according to Congressional Budget Office projections, is that federal spending will reach 36% of GDP in a generation. This implies that taxes will have to double from the current, near-historic average, 18% of GDP. All federal taxes will increase—on income, capital gains, dividends, corporate earnings, employer and employee payrolls.

Left unchecked, many middle-income earners eventually will face marginal tax rates of 70% or higher—reducing them to minority partners in their own additional work and sundering the value of the investments in their own education.

Either the next generation will be saddled with steeply higher taxes on their work and savings, or the growth in entitlement spending will be slowed. The political battles over this fundamental question will be waged between generations, income groups, high- and low-tax states, taxpayers and retirees, public employees and recipients of every other government service.

The math is unavoidable. The biggest safety-net programs, including Social Security and Medicare, began under far different economic and demographic conditions. But as economic growth has slowed and the population has aged, the ratio of people receiving government benefits to those paying taxes has been rising rapidly. Spending on these two and other entitlement programs will gobble up bigger and bigger chunks of the federal budge

t.