Raise Taxes or cut spending? Demographics make it easy.

With historic deficits, the question being discussed these days is: Raise taxes or cut Government spending? While raising taxes has rarely worked (article) in the past, there is even less reason to believe they will work this time. Participation rates continue to decline rapidly. Soon there will be just 2 workers per retiree. Smaller percentage of workers are already asked to carry sins of the Father: Debt, Pension Obligations – funded and unfunded – plus Health Care obligations. Raising Income tax (at 53% in Ontario top bracket) or Sales Tax (13%) will simply encourage less work or less purchasing (above the table!) for this stagnant group or earners.

Trimming expenditures (article) as many are suggesting will not “cut it”. Massive reductions in Government spending are required if they are to survive the move to the 2 workers per retiree economy.

Asset testing the Older Adult Scam (can have Millions in Assets and get OAS welfare cheque) is a no brainer. But the real cause of the problem – as illustrated in the diagram – is fewer percent of young people and they do not have the votes. Look for more taxes on young people. It will not avoid the inevitable - defaulting. Wiping out debts and Pension obligations for them will be great but unintended consequences.