The new taxes coming to finance all that stimulus spending

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A massive hike in the national debt could require new forms of taxation within the next five years.

During the last two months, Congress has passed $3.6 trillion in stimulus spending, with more probably on the way. Washington’s annual deficit was likely to be around $1 trillion before the COVID-19 pandemic induced a recession. The deficit will now hit at least $3.7 trillion this year and $2.1 trillion next year, according to the Congressional Budget Office.

Medicare, the health insurance program for seniors, could run short of money in 2023 or sooner, as the payroll taxes that finance the program plunge amid record unemployment. The whole program wouldn’t go bust, but it would pay only a portion of the cost for services. Social Security could run short of money by 2028, for the same reason, with the smaller disability insurance program running short by 2024.

A value-added tax. This may be the most efficient way to raise a lot of money quickly. Most advanced nations have a VAT, which is like a national sales tax imposed at various points in the production of goods and services. A 10% VAT would raise around $1 trillion per year, and Congress could design it with protections for lower-income Americans, small businesses and other vulnerable groups.

 

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