US citizens pay too little taxes. I just made a lot of enemies with that statement.
Note I said pay too little, not that the rate is too low. The rates are actually pretty high, we just give a ton of tax write-offs and deductions. Partly to citizens, but mostly to corporations. I myself take advantage of the mortgage deduction, which saves me a lot of money. But corporations that, on paper, have one of the highest tax rates in the world, in reality pay less than 1% of taxes on their net profit. Worse, small business tend to pay high taxes, while the big businesses find ways to pay nothing. Example: GE's Taxes
Another problems is the Capital Gains Tax. Conservatives want to keep it low to encourage re-investment of profits. This is a good idea, it just has some bad consequences that we don't take into consideration. Right now, the Long Term Capital Gains Tax rate is significantly lower than the income tax rate. The problem is that once you make more than a $500,000 a year, you quickly start making investments (unless you are a huge spendthrift) and those investments quickly make more profit than your salary. So people making more than $500,000 a year end up paying LESS taxes (as a percentage of their total profit), then people making $50,000.
This was fine up until GW Bush took over. He made two major mistakes. 1) He saw that under Clinton, we had a surplus and choose to spend it by lowering taxes even further - with no auto tax hike when the surplus vanished and 2) He started two expensive wars. These two things combined destroyed the surplus and sent us into a debt spiral.
Now, we don't want to raise taxes because it will hurt the economy. This is despite the fact that technically the economy has already recovered. By recovered, I mean that things are no longer getting worse (recession), even if people are still unemployed or underemployed.
The conservatives continue to want to cut services and more tax cuts. The problem is that services have already been cut to the bone. There is no real place to cut significant money except for Military, Medicare, and Social Security and as a people we do NOT want to cut those. Welfare was already gutted under GW Bush, and what is left is both insignificant (compared to our debt) and desperately needed (see unemployed and underemployed).
The Ffture is pretty clear to me. We will continue to spend more than we take in from taxes. The Republicans won't raise let anyone raise taxes until the debt gets FAR worse than it is. The Debt will rise till the taxes we take in are about the same as the interest payments we pay on the debt. At that point someone will point out that we literally could cut everything and not pay the debt and finally we will have to raise taxes a HUGE amount.
Before this happens, several other fixes will be made. First, to 'save' social security, the rich will lose their ridiculous exemption for social security tax. They will pay social security tax on all their income, not just the first 100,000 of it. This is almost a certainty, because with this change, social security becomes solvent and without it, we have to reduce benefits.
Second, Interest Rates will SKY ROCKET. Because as US debt grows, other countries will slowly realise we are not rock solid any more and will demand higher rates. If the Fed is smart, they begin to respond by issuing longer duration bonds. Instead of maintaining a 1 year average duration for our debt, we will slowly push it out towards 15. Note that means we will make some of that debt back merely from inflation - after interest rates rise that is.
There is however one way out: Raise taxes. It does not have to be income taxes. Half of the money in the US is owned by only about 400 people, who each own in excess of 1 billion dollars. So lets tax all assets owned by a household (single person or couple) when the assets exceed half a billion. Keep the tax small, but NO exemptions besides the first 500 million.
A simple "Federal Property Tax", issued on all assets (real estate, stocks, bonds) that is of 1%, with the first $500 Million of property exempted (so no one except the very very rich would pay - if you have half a billion dollars, you are very rich), would easily solve most of our problems. Effectively, that should total around $250 billion per year. (Estimated assets of $50 trillion, half of that falls under the 500 million exemption, times .01%) The US Deficit under GW Bush's first term was about $223 Billion. Unfortunately after GW Bush's last term it is a trillion dollars. Still, that is 1/4 of the way there. I don't think we could get away with 5%, which would kill the current defecit - that is too high a property tax.
In addition, we also need laws to prevent either additional spending or tax reductions without tax increases. The idea of paying for spending increases with offsetting reductions has failed. We simply do not have enough reductions that enough people are willing to do. We can afford to use spending reductions only to reduce the deficit. Anything else is just wishful thinking.
More importantly, we need an emergency reserve, to pay for things like Hurricanes, Wars, Volcanoes, etc. This is on top of the surplus created by the tax. The surplus is there to pay down our debt, nothing else.