Tax Analysts Blog

"Risky Debt" and "A Dose of Reality"

Posted on May 19, 2009

The Senate Finance Committee has released a list of possible ways to raise taxes to pay for part of Obama's health plan. It is anybody's guess if Congress will be able to agree on any of these. Failure to raise the necessary money would mean Obama's "down payment" on healthcare reform is down the tubes. My top picks for financing expanded healthcare are discussed in an article I wrote for Tax Notes.

In a May 18 op-ed ("America Requires a Dose of Healthcare Reality") Financial Times columnist Clive Crook writes that the Congress and Obama are deluding themselves if they think cost savings will pay for an expansion of healthcare. He concludes that:

      Near-universal healthcare will require higher taxes. . . . Even without healthcare reform, Mr Obama’s long-term budget does not balance. So count on it: US taxes are going up.

Meanwhile, on May 19 an editorial in the Financial Times bemoaned the lack of fiscal discipline in the House version of the climate change proposal:
      During the campaign for the presidency, Mr Obama promised that all permits would be auctioned. . . . The House committee’s current proposal chooses to give 85 per cent of the permits away. The hole in Mr Obama’s long-term fiscal arithmetic just got bigger.

And in a May 18 Washington Post op-ed ("Obama's Risky Debt") Robert Samuelson picked up on the theme I have been harping on since this blog got started:
      At best, the rising cost of the debt would intensify pressures to increase taxes, cut spending -- or create bigger, unsustainable deficits. . . . Huge budget deficits could also weaken economic growth by "crowding out" private investment. At worst, the burgeoning debt could trigger a future financial crisis. The danger is that "we won't be able to sell [Treasury debt] at reasonable interest rates," says economist Rudy Penner, head of the CBO from 1983 to 1987. In today's anxious climate, this hasn't happened. American and foreign investors have favored "safe" U.S. Treasurys. But a glut of bonds, fears of inflation -- or something else -- might one day shatter confidence. Bond prices might fall sharply; interest rates would rise.

Some people are saying this blog and this author are too gloomy. Not true! The content is just ahead of the curve. And the author is a very jolly fellow.

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