The Ignorant Investor

The Wall Street Journal says:

Even though President Bush signed $70 billion of tax cuts into law last week, many people still may get hit with higher taxes this year.

The reason: Congress hasn't yet extended the life of several popular tax breaks that expired at the end of last year. Among them is a provision that allowed millions of people to deduct state and local sales taxes instead of state and local income taxes. Other expired breaks include deductions for millions of teachers and for many people with college and graduate-school bills.

Congressional leaders hope to resurrect these and other expired tax provisions, including a business research and development credit, retroactively to the start of this year. "These are all provisions that should have been taken care of first" but "were left out" of the recently enacted law, says Montana Sen. Max Baucus, the ranking Democrat on the Senate Finance Committee. "Now it's vitally important" to pass another bill. "Allowing these provisions to remain expired would mean a 2006 tax hike for millions of working families," he says.

It's becoming increasingly clear that Congress has no intention of doing anything about controlling the deficit. With interest rates rising, failing to match revenues with spending and financing the resulting gap will only get more expensive as time passes. The government, just like the consumer, has grown so used to cheap credit that it now takes it for granted.

These deficits are coming at a time when the economy is booming. We are in the years of plenty, and years of plenty are inevitably followed by the time of scarcity. The time of scarcity is when the government can be expected to run huge deficits as the need for social services explodes and it seeks to 'prime the pump' with spending on infrastructure and other projects. That's no time for raising taxes, economists say. So what's going to happen when the huge deficits of today need to be serviced with the lower revenues of tomorrow, when the government will have no ability to raise taxes?

Somehow I already know the answer: Someone is going to suggest a big tax cut.