Altman’s treatment: Bleeding the patient

Roger Altman sees many of the same slow-growth problems that David Malpass warned against . . .

federal deficits may average a stunning $1 trillion annually over the next 10 years. This worsened outlook is stirring unease on Main Street and beginning to reorder priorities for President Barack Obama . . . .

The burst of spending in recent years and the growing likelihood of a weak economic recovery. The latter would mean considerably lower federal revenues, the compiling of more interest on our growing debt, and thus higher deficits. . . . the latest data suggests that we’re on a much slower path. Probably along the lines of the most recent Goldman Sachs and International Monetary Fund forecasts, whose growth rates average about 2% for 2010-2011.

A speedy recovery is highly unlikely . . . .

. . . but unlike Malpass’s pro-growth strategy, Altman proposes to make matters worse:

we’ll have to raise taxes.

Today, the U.S. ranks next to last among the 28 Organization for Economic Cooperation and Development nations in total federal revenue as a share of GDP. Our federal revenues represent 18% of national output, down from 20% just 10 years ago. That makes the mismatch between our spending and our revenue very large, producing the huge deficits we face.

We all know the recent and bitter history of tax struggles in Washington, let alone Mr. Obama’s pledge to exempt those earning less than $250,000 from higher income taxes. This suggests that, possibly next year, Congress will seriously consider a value-added tax (VAT). A bipartisan deficit reduction commission, structured like the one on Social Security headed by Alan Greenspan in 1982, may be necessary to create sufficient support for a VAT or other new taxes.

. . . it is no longer a matter of whether tax revenues must increase, but how.

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