Comfortable?

Then it's time for the Vexatious Feel Good Quiz.

Check which of the following statements is true:

•           We pay too much in taxes.

•           We pay too little in taxes.

•             Both of the above.

Now give yourself an "A" for a perfect score, whatever you answered because, as I will soon demonstrate, each of the three answers is correct. So you can feel good.

The fact that we are under-taxed and over-taxed at the same time may explain why so many of us feel an abiding uneasiness about the tax posturing of both candidates for President.

Why We Are Overtaxed.  

Imagine our country as a big club in which we are all members. Imagine also that the annual dues are being increased regularly. This happens even though the club has more income than needed to pay its bills. Indeed, a very large amount of cash is starting to build up in the club checking account.

At some point, we might be tempted to call a club director and suggest that the annual dues be cut. After all, members may have uses for their own money.

That's what is happening in Club USA. Looking ahead over the next ten years, the Congressional Budget Office estimates that Club USA will collect nearly $2.2 trillion in unneeded dues in the budget that we support with a variety of income taxes.

To be sure, looking ahead requires a lot of assumptions about both member dues and club spending. This $2.2 trillion figure, however, is the lowest of the three provided by the CBO. The highest is a surplus of $3.4 trillion.

In fact, the actual size of the surplus isn't as important as the fact that we are being overcharged for our memberships after years of being undercharged. The choice that faces the club is very simple. It can (1) continue to overcharge its members and pay off debt the club accumulated while it was undercharging. Or (2) it can give its members a rebate.

Either way, the money belongs to the members, not the club. A tax cut would be a rebate of an overcharge. In this department, Mr. Bush has got it right and Mr. Gore hasn't got a clue.

Why We Are Under Taxed.

Club USA has another set of dues to pay for older members. The budget for this program also appears to be in surplus. Unfortunately, it doesn't look far enough ahead.

If that was done and life expectancies were realistically higher, current employment dues would have to be raised from 12.4 percent to 18.4 percent. "Stated differently," economists Jagadeesh Gokhale and Laurence J. Kotlikoff noted in a recent paper, "Social Security is short 40 percent of the funds it needs if it doesn't want to cut benefits."

And that isn't the whole story.

Two other economists, David Cutler and Louise Sheiner, have estimated that it would take a permanent increase of 4.1 percentage points in the Medicare tax--- immediately--- to have that program funded for long term solvency.

If you add the two tax increases, 6.0 percentage points and 4.1 percentage points, you get a 10.1 percentage point increase, an amount that ranks up there with total Federal Income Tax collections. Note that this increase is not to improve or expand programs, it's just to make sure that current club members don't stick future club members with an even higher bill.

In this area, Mr. Gore remains entirely clueless and Mr. Bush has taken a timid step without ever revealing the true size of the problem.

Undertaxed and Overtaxed at the Same Time.

So there you have it, our friends in Washington have us overpaying on one set of dues--- the Federal Income Tax--- and underpaying--- by considerably more--- on another set of dues, the Employment Tax.

Political pundits have said, "Social Security is the third rail of American politics."

The pundits are wrong.

Truth is the third rail of American politics.