- The Washington Times - Tuesday, July 6, 2010


Quietly in June, the third rail of politics had the juice knocked out of it. Both the majority and the minority leaders of the House of Representatives either said aloud or hinted

strongly that the retirement age under Social Security should be raised. Since so many American now live longer than the current retirement threshold of 67 years old, both Steny H. Hoyer and John A. Boehner raised the prospect that citizens might one day have to be older to receive their full Social Security benefits.

Politicians don’t even utter the words Social Security for fear their careers might be stunted. But these two veteran lawmakers know that, starting next year, budget deficits will be front and center. The cuts (and tax increases) will have to come from somewhere, and one of those places will have to be Social Security.

President Obama’s deficit-reduction commission is already at work and is scheduled to report its conclusions after the midterm elections in November. Such reports are often ignored, but this one has a chance of being taken seriously. The problem is enormous.

Trillion-dollar annual deficits are unsustainable. The Group of 20 made that clear last month, and even the spendaholic Obama administration grudgingly accepted the verdict.

The question now is: Who will get stuck with the bill? Clearly, senior citizens are already on notice. It would be hard to imagine that high-income oldsters won’t have to pay more taxes on their benefits - or to accept less money overall. But that barely scratches the surface. The Pentagon is already trying to shave tens of billions of dollars from its spending. That effort, led by Defense Secretary Robert M. Gates, is no doubt designed to prevent Congress from taking an ax to the budget when, with careful planning in advance, a scalpel could be used.

Major cutbacks in many places, including defense spending, will be needed to get anywhere near the deficit reduction that will needed. The G-20 calls for a halving of annual deficits over time, and even that will be a chore.

That leads to tax increases. Republicans say, “No way!” But everyone in official Washington knows that cutting discretionary spending like defense outlays and entitlement spending like Social Security benefits will not be enough to bring the budget situation into line.

Two targets stand out. The first is corporate America. The Obama administration has made absolutely clear that it thinks that several industries are ripe for the plucking. Financial institutions, already under attack in the financial-regulation bill pending in the Senate, will have to fend off additional taxes down the road. You can bank on the “bank tax” coming back heavily into vogue even if the pending legislation includes a version of the levy, as now appears likely. Multinational corporations will also have a tough time protecting their ability to defer taxes on their income that comes from foreign sources. In fact, anything that smacks of sending U.S. jobs overseas will likely be reined in or at least on the block. Oil companies will certainly be in the cross hairs as well, both at the corporate level and indirectly through gasoline and oil excise taxes. The horrific spill in the Gulf of Mexico has made them and their products even more vulnerable than they were already - which is highly vulnerable.

In addition, individuals will be susceptible to higher levies. No one wants to say so out loud, but the only way to bring in significant amounts of revenue is to tax middle-class folks. That’s why a value-added tax - which is an elaborated version of a sales tax - is very much on the table. Rich folks, in addition, will be at the top of Mr. Obama’s hit list. Watch for tax-rate hikes and the removal of tax breaks for people over a certain income. No one would be surprised.

Indeed, almost no one will be immune from the pain of the double whammy that is just over the horizon. Government will have to be rolled back and taxes will have to be increased. There’s just no way to get around it.

The more pervasive trends of the last decade - the massive growth of government and the shrinking of revenues under both Republican and Democratic control - are about to be reversed in the most abrupt and shocking way. There may have to be a financial crisis of some sort to precipitate the change, but the change, one way or the other, is coming.

Smart politicians and insiders like Hoyer, Boehner and Gates are volunteering sacrificial lambs now in order to protect the rest of the herd later. Organized interests that don’t start working on plans to give up a little now will probably be forced to give up a lot later.

Jeffrey H. Birnbaum is a Washington Times columnist, a Fox News contributor and president of BGR Public Relations. His firm represents a variety of corporations.

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