Ronald Reagan brought a resolute philosophy to the Presidency. He wanted to starve the federal government for funds. With less money available, not only did he think he would be able to moderate the growth of government, but also ultimately shrink it. He believed that less government meant more personal freedom. While Reagan was able to shrink the percentage of Gross Domestic Product (GDP) that the federal government took in taxes, he failed to stem its profligate spending habits.
Now 28 years later, a president is elected whose goal (while not as succinctly stated) is just as obvious in its effect. Mr. Obama has proposed budgets that project deficits of a trillion dollars for the next ten years. Is it any surprise that his wise, old economic advisor, Paul Volcker, has started floating the idea of a VAT tax? It does not take much imagination to conclude that the proposals that emerge from the Bipartisan Commission on Fiscal Responsibility and Reform will state we need more revenue (taxes) at the federal level to avert financial disaster. The question is how did we get here?
Life is full of little things that are harbingers of much larger things. Recently, I ran into a client and his wife. Since most conversations regarding their family finances are with the husband, I was a little surprised when she expressed dismay that so much tax was being withheld from her husband’s paycheck. Without injecting any political comment, I attempted to explain to her what might be the cause of her concern. But the truth is that most people do not connect the dots between their vote and the consequences. When the end result hits you squarely in the family bank account, a realization sometimes occurs resulting in an epiphany.