NYT - How Tax Cuts Feed the Beast

The financial future of America looks pretty grim for me and for my kids.

Washington has historically engaged in immense wealth redistribution from younger to older generations, mainly through Social Security and Medicare. Those programs' benefits were essentially provided free to the first groups of eligible retirees (in the 1930's for Social Security and the 1960's for Medicare), and then expanded over the years without the government's demanding matching contributions from recipients. The younger generations keep having to pick up the tab for the older generations' expanding benefits.

The second major point is that, as even the president's 2005 budget admits, our current tax and spending policies are unsustainable. We face a long-term fiscal gap that is almost unimaginable: the total difference between the cost of all promised benefits and the revenues to pay for them is about $70 trillion.

The root causes of this gap are that Americans are living longer and that health care costs are growing far faster than inflation, making Social Security and Medicare more expensive. But the Bush administration has added immensely to the gap: the Medicare prescription drug benefit enacted last year amounts to a $16.6 trillion increase over the very long term, according to the Medicare trustees. That is a straight tax increase on future generations.

Against this background, how should we think about the huge Bush tax cuts? They greatly increase the already huge redistribution of wealth from younger to older generations, because the younger generations will have to pay off the bonds that are being floated to finance the current federal spending, as well as the Social Security and Medicare expenses of older generations. On top of this, the Bush tax cuts are likely over time to increase, not reduce, government's effect on the economy.

The growing federal debt is virtually certain to lead to offsetting tax increases down the road. Does anyone really believe that in 10 years, when Social Security and Medicare benefits are imminently threatened, Congress will not try to increase revenues to keep the benefits flowing a bit longer?