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Study: Obama’s big budget deficits could mean a $4,000 a year middle-class tax hike

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President Obama doesn’t think Americans should fret about the exploding national debt. As he told talk show host David Letterman recently, “We don’t have to worry about it short term. Right now interest rates are low because people still consider the United States the safest and greatest country on Earth, rightfully so. But it is a problem long term and even medium term.”

So, in Obama’s view, dealing with the debt is more of a tomorrow thing than a today thing. Or maybe even a day-after-tomorrow thing.

But every day that the debt grows, the burden on Americans grows, too. Servicing that debt will need to be met by either increasing taxes or decreasing spending.

So who exactly bears that burden. And how much does the burden weigh in dollars?

Well, according to the Congressional Budget Office, the latest White House budget would add $7.6 trillion of debt from 2012 to 2022. In a new paper, AEI’s Aspen Gorry and Matt Jensen looks at the real annual cost of servicing the debt for households at various levels of income — including a potentially higher tax burden.

As the table below illustrates, a household making between $100,000 and $200,000 a year could find its tax liability higher by roughly $2,400 every year. Over ten years, that works out to $24,000.

And when you add in the debt already accrued the past four years under President Obama (the second table), that’s another $1,600 a year. So now we are now talking about $4,000 a year, $40,000 over ten years.  

 

A couple of caveats: To compute these annual costs, Gorry and Jensen use the long-run average effective real interest rate on U.S. debt from the Congressional Budget Office. According to the CBO, the average effective real interest rate on U.S. debt will be 2.7% in 2025 and then remain at approximately the same level until their projections end in 2087. Of course, as real income grows over time,a fixed cost of debt service becomes less burdensome. Second, it should be noted that interest rates are currently much lower in the U.S. Using the long run average instead of current implies that the numbers should be interpreted as a long run expected cost of servicing the debt.

10 thoughts on “Study: Obama’s big budget deficits could mean a $4,000 a year middle-class tax hike

  1. Obama may a lousy president but I see nothing in the GOP budgeting proposals that shows that Romney would be much better on the deficit issue. Half of all tax revenues are going towards military activities. (Pentagon budget, contingency requests for the wars, CIA drones, NSA, NASA military projects, Veteran Affairs, DHS, military aid, and all the interest on the accumulated debt due to war.) Given the SS and Medicare commitments where would any cuts come from?

    Sorry James but you are missing the big picture. There is no difference between the GOP and the Democrats and the only possible salvation comes from a third party peace candidate. You know of one?

    • @ Vangel:
      Not knowing you I cannot say if you are simply ignorant of the facts or if you are a plain liar. What I CAN say is you are absolutely incorrect. Even the liars in the WH say defense spending is only 18% of the spending in 2001. Here is their own link: Table 4.2—Percentage Distribution of Outlays by Agency: 1962–2017

      It is time that ALL those who wish to deny, twist, or misrepresent facts be called out and shown to be the liars they are. I mo no gop fan either. I am an American Patriot who believes BOTH parties are corrupt and NEITHER represents We the People, but only represents their own interests. It is time to do away with parties altogether and focus on principles, NOT rhetoric.

      • I think that you need to be a more careful reader. Look at total military spending, which includes the DOD, CIA, NASA funding related to the military, off budget items to fight the current wars, DHS, military aid to foreign countries, VA, etc., and compare that not to the spending but to the actual tax revenues. You see that military spending is more than half the tax revenue.

        What confuses you is the total spending, which comes from tax revenue plus new borrowing. You also ignore all of the military spending that is not a part of the Defence budget. But you can’t avoid reality by ignoring it. Eventually the interest on the debt taken on to fight wars will have to be paid or you will have to default. Eventually the off budget items will have to be properly accounted for. Eventually all of the budget for CIA drones, and the CIA runs much of the program, not the Pentagon, will have to be accounted for. Look at all of the taxes. Look at all of the money spent on military related programs. You get the numbers that I cited.

  2. Even if our defense budget were 50 per cent of the budget which is absurd, the main obligation of the government is to protect us from foreign threats.

    5

  3. I fit the highest end of this analysis and have 2 comments: I happen to have many friends who make much less than $100,000 and call themselves Middle Class
    : I will accept the extra tax for a functioning society ( I’ve traveled the world and seen societies without safety nets.
    I came to this webpage today from Ohio where Romney’s TV add claims the AEI and this article to be “independent & bipartisan”. Too bad I also don’t believe that God was a man who lead a good life on a planet by the star Kolob.

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