Taxes will slowly but steadily climb over the next 25 years to levels beyond historical averages, affecting Americans at every income level, the Congressional Budget Office
warns in a startling new report.
Titled "2014 Long-Term Budget Outlook," the agency paints a grim picture of the economic future for most taxpayers, especially for low-income earners, Politico
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"Even if no changes in tax law were enacted in the future, the effects of the tax system that would be in place would differ in significant ways from the effects of the tax system today," the CBO says in its report.
"People throughout the income distribution would pay a larger share of their income in taxes" and "many taxpayers would face diminished incentives to work and save," it says.
In practical terms, Politico notes, the value of the mortgage interest deduction will be cut by nearly half, many more Americans will owe taxes on their Social Security benefits, and Obamacare taxes aimed at the well-to-do will begin hitting a lot more taxpayers.
For example, a family of four earning half the median income in 2039 — about $73,200 by CBO's calculation, which includes the value of tax benefits like health insurance through work – would pay 10 percent of their earnings in individual and payroll taxes.
That's up from the current negative 1 percent.
Top earners won't dodge the tax bite, either: a family of four earning four times the median income in 2039 — $585,600 — would pay 31 percent of their income in taxes, compared with today’s 28 percent, the report predicts.
The CBO warns that tax receipts in 2039 will total 19.4 percent of the nation's gross domestic product, a level rarely seen since the last half-century and surpassing the 17.4 percent average seen over the past 40 years.
Along with the huge tax increase will be governmental debt increases to levels unseen since after World War II, the CBO predicts, citing rising healthcare costs, the aging of the population, and increased interest payments on the debt.
"Between 2009 and 2012, the federal government recorded the largest budget deficits relative to the size of the economy since 1946, causing its debt to soar," the report notes, according to CNS News
"The total amount of federal debt held by the public is now equivalent to about 74 percent of the economy's annual output," which is a "higher percentage than at any point in U.S. history, except a brief period around World War II."
In contrast, the national debt "stood at 39 percent of [gross domestic product] at the end of 2008," the CBO noted.
This massive debt will continue to increase over the next two decades because of an "aging population, rising healthcare costs and an expansion of federal subsidies for health insurance," the CBO warns.
The cost of Social Security, Medicare, Medicaid and subsidies through the Affordable Care Act will rise to 14 percent of gross domestic product, or double what it's been in the past, the CBO said, adding it's a "trend that could not be sustained indefinitely."
The tax and debt increases, the CBO predicts, will happen slowly, and there will be no quick fixes.
To put the federal budget on a sustainable course, the CBO recommends "reducing spending for large benefit programs below the projected levels, letting revenues rise more than they would under the current law, or adopting some combination of those approaches."
Fixing the problem years from now "would represent a greater drag on output and income in the long term and would increase the size of the policy changes needed to reach any chosen target for debt," the report notes.
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