The Coming $11,000 per Household Tax Increase

This April 15, Americans struggling to file their 1040s are surely frustrated about their high tax levels. Unfortunately, things may get worse before they get better.

From 2001 through 2008, inflation-adjusted federal spending rose from $20,848 per household to $25,560 – an increase of nearly $5,000 per household. Of course, if government expands by $5,000 per household, taxes must eventually rise by that same amount. Deficits have funded the new spending thus far, but that cannot go on forever.

One would think our lawmakers would bring spending back to that $20,848 per household level in order to avert these painful tax increases. Instead, President Obama and Congress are accelerating the growth of government. This year – one of historic Wall Street bailouts and a $1 trillion “stimulus” – Washington is set to spend a staggering $33,375 per household. Does anyone honestly believe they are getting $33,375 worth of value from Washington?

Even though much of this year’s new spending is temporary, President Obama has proposed a budget that would permanently enlarge government. By 2019 – even assuming peace and prosperity – the President’s budget would spend $32,462 per household (adjusted for inflation).

Let’s do the math. Taxes have averaged around $21,000 per household. President Bush expanded government to $25,000 per household (funded by deficits), and President Obama’s budget would push that total to more than $32,000 per household. Obviously Washington cannot permanently finance all this new spending with deficits. This means taxpayers should prepare for an $11,000 per household tax increase.

President Obama has already proposed steep tax hikes for small businesses and upper-income families. He has also proposed a cap-and-trade energy tax that could cost about anywhere $600 to $2,000 per household. And yet even these painful tax increases cover only one-third of the $11,000 per household tax gap. More tax increase proposals are almost certain to follow, and not just for the “rich.”

Thankfully, there is an alternative approach: rein in government. Enact common-sense spending caps. Reform Social Security, Medicare, and Medicaid. Avoid a government takeover of health care. Resist expensive new financial bailouts and take back unspent stimulus funds after the recession ends.  If Congress merely keeps government at its pre-recession size, it can avoid large tax increases that would devastate entrepreneurs and families. Otherwise, weary taxpayers should brace themselves because the worst is yet to come.