Sorry, Middle Class. The VAT May Be Inevitable

If the government fails to enact structural reforms in spending, an entirely new source of revenue will be needed. The most likely one is a value-added tax that would crush the middle class.
FORTUNE -- You can't blame middle-income Americans for wondering whether the new "fiscal cliff" deal really protects them from big tax increases in the future. That's essentially what President Obama promised in championing the hike in rates for high-earners signed into law on January 2. Still, the politicians and pundits keep talking about how our steep deficits and mountainous debt will rise even after the new revenue is counted. So it's only natural for the folks to ask the obvious question: Now that the affluent are paying far more, where's the extra cash supposed to come from?

The answer is that America's teachers, nurses, truck drivers, police officers, computer programmers and construction workers should indeed be worried. To understand why, it's important to carefully analyze the most likely trajectory of tomorrow's budgets. To get the best view of our fiscal future, I spoke to Congressional aides who recently prepared new forecasts incorporating projected receipts from the recent tax increases. Those projections closely track the numbers prepared by the non-partisan Congressional Budget Office in March and August of last year, when the fresh revenues from high-earners are included.

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