With health-care legislation looming, Posner worries about the debt:
At first it was argued that health-care reform would more than pay for itself by the savings in health-care costs that it would generate. No one argues that any more. Now the argument is that at least the savings will pay for the cost of the program--and fewer people are arguing that with a straight face. If the health-care plan is enacted, the government's fiscal dilemma will probably be even graver than it is now. The need for a general tax increase will be all the more urgent--and it has just been taken off the table.
Or has it?
The President is a lawyer. Lawyers are masters of equivocation. Perhaps what has been taken off the table is just increases in income tax rates until the economy recovers from the current depression. Perhaps the door has been left ajar for other forms of tax increase, such as a federal value-added tax; cutting deductions (which do not affect the nominal tax rate); and increasing federal income tax rates in a year or two, when (one hopes) the Gross Domestic Product will have returned to its trend line.
I hope there is this running room; the alternatives seem either less feasible politically (such as cutting spending) or more harmful to the nation--as Summers and Geithner must know.
Daniel Indiviglio shares his concerns but downplays any fear of US insolvency by pointing to this new credit-rating report. I can certainly see the need for VAT down the line. And sooner rather than later, if expanding healthcare insurance works.