Runaway Deficit Leaves Pols With Awful Choices on Taxes

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-Expiration of the "Making Work Pay" tax credit, which for the past two years has plumped a few bucks more take-home pay ($7.70 a week for individuals) into the wallets of the middle class.

VIDEO: Dem. Senate candidate in Delaware clears up his position on extending cuts.
Chris Coons on Bush Tax Cuts

-A reduction in the deductibility of commuting costs (currently up to $230, but up to only $120 next year).

--Expiration of the American Opportunity Credit, which had allowed parents jointly making up to $160,000 to take as a tax credit up to $2,500 for money spent on their kids' college costs.

She calls the sum of all these changes "a perfect storm" for taxpayers.

What if tax cuts were extended longer than two years—for a decade, perhaps? Would that be a good thing for the middle class?

Hard to say.

No one of any class wants to live in a country that's going broke--and that's what the U.S. risks long-term if it fails to pay down its ballooning debt. Tax cuts can be viewed as just that much less revenue available for debt reduction.

GMA Quick Tips: Taxes
GMA Quick Tips: Taxes

Ten years from now, says Stretch, if tax cuts are left in place, the U.S. deficit could grow to 7.5 percent of GDP. "At 8 percent, all of the government's revenue would have to go just to paying interest on the debt. You don't want to exceed 2 percent to 2.5 percent, otherwise you're digging yourself a hole you can't get out of," Stretch says.

The dilemma for the middle class, he says, is this: You can have your tax cuts now; but eventually the federal government, in desperation, will need find other ways to increase revenue—a value-added tax, perhaps, or a tax on your 401K. Costs will have to be reduced. Benefits will shrink and services will be curtailed. The road outside your house may get paved less often.

End to Bush Tax Cuts Looming
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It all comes down to the age-old question: Do you want to pay now, or later?
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