Taxpayers' rage over bailouts, TARPs, and daring housing rescue plans continues unabated. The nation's ire seems largely centered on the idea that our tax dollars are directly rescuing Wall Street banks like Citigroup
Rabble rabble rabble
The problem with this argument is that our tax dollars have already been spoken for, and have been for quite some time. According to The Heritage Foundation, from 1965 to 2007, government tax revenues grew $1.9 trillion, but spending rose $2.1 trillion, resulting in average annual deficits of $167.8 billion on an inflation-adjusted basis. So even before the bailouts began, formal income tax dollars alone didn't fully pay for the government's spending. It's somewhat fascinating that it's taken us taxpayers some forty years to finally demand fiscal responsibility in Washington.
But now that we're tacking on a few more trillion in 2009 and beyond for various forms of government economic intervention, how will our government bridge the even bigger gap?
Not with higher income taxes across the board -- we Americans have never really cared for taxes (see: Revolution, American). At best, we consider them a necessary evil. Instead, it will all be paid for with more debt, in the form of U.S. Treasury securities.
In a twisted way, the global stock market panic has actually helped the government borrow at better rates -- since the Treasury is the largest liquid market in the world, backed by the full faith and credit of the U.S. government, panicked investors have flooded the Treasury markets for relative safety, driving down yields and jacking up prices. Today, the 10-Year T-bond yields just 2.7%, so the government would be crazy to not want to finance its projects at such low rates.
Eventually, however, this sweet arrangement will change, as all things must. Income-thirsty investors may begin to nibble on higher-yielding-but-investment-grade corporate debt issued by names like Xerox
What it all means
In 10 years, as entitlements like Medicare, Medicaid, and Social Security begin to ramp up for the baby boomers, the government will have no choice but to print more dollars to fund all its projects and pay for its liabilities. This, my friends, means inflation and the gradual devaluation of the dollar, which will serve as a "backdoor tax" for future generations of Americans.
Our frustrations as taxpayers regarding the bailouts, therefore, shouldn't be based on our formal income taxes, since they amount to just a drop in the bucket. No, our concerns should be with the massive government borrowing and its negative effects on the long-term value of the dollar, which would levy an especially heavy tax on savers and fixed-income investors, and make investing in the U.S. less attractive to foreign investors.
Do something about it
If you're concerned about our country's fiscal health, make your voice heard by contacting your representatives in Congress (you can find them at Congress.org) and let them know that you care about this issue.
