A recent Gallup survey shows that Americans favor reducing the deficit as a strategy for economic growth—as opposed to other frequently discussed options including increased taxes on the wealthy or additional stimulus spending.

Yet, three days later after that survey’s release, the President’s Commission on Fiscal Responsibility announced that it couldn’t muster the votes to send a deficit reduction plan to Congress for consideration.

Is there a disconnect between the worries of the American public and those in the position to do something about it?

Other research from Gallup suggests that it’s not cut and dry. Polling from earlier this year shows the public’s concerns about the national debt are rivaled only by their concerns about terrorism. Yet at the same time, a majority of the public is not willing to cut benefits that are driving our long-term debt crisis.

It’s not surprising that members of Congress would be hesitant to vote in favor of a deficit reduction plan that reins in Social Security, Medicare, etc.

Americans are concerned about the debt, both because of its sheer size and the personal consequences of not taking action (read more about personal consequences here). What they’re not yet on board with are the needed changes to “sacred” government programs necessary to put our country on firm financial footing.

There is an upside to taking action now: The deficit commission’s plan to reduce the national debt makes clear that it’s possible to make small, gradual changes to entitlement programs in the present, and avoid drastic cuts in the future.

It’s a bargain worth considering. As we wrote earlier this year, the consequences for you and your family of failing to make these changes now couldn’t be more serious: “Money in the bank and savings will be worth less; take home pay will be lower because of higher taxes; and promised benefits will be slashed as the glide path of entitlement reform becomes a cliff.”

On December 1^st, the President’s Commission on Fiscal Responsibility and Reform will deliver their recommendations on how to reduce the US national debt. The Commission is said to be considering not only spending cuts, but also new revenue sources. According to one recent Reuter’s article, a value added tax (VAT) is likely to be in the mix.

So how exactly does a VAT work, and what does it mean for your wallet?

Think of it like this: unless you live in a state like Delaware or Alaska with no sales tax, you’re probably accustomed to paying a bit extra on most retail and grocery purchases you make. With a five percent sales tax, you buy a hamburger for $1, but the final price you pay for that burger is $1.05. The restaurant then passes that extra 5 cents on to the state government.

As a consumer, you’re still paying extra for a VAT, but it’s much stealthier than your state’s sales tax. With a VAT, the restaurant will pay a tax to the federal government on the ingredients they purchase to make your burger. Since a ten percent VAT means that a burger is ten percent more expensive for a restaurant to sell, the restaurant responds by charging you more for your burger (with full pass-through of the tax, the price you pay rises to $1.10).

You don’t see this tax as a line-item on your receipt, but you’re still paying more money for many of the items you’re purchasing. It’s a stealth tax—and that’s the point.

Congress risks political backlash if they make significant cuts to entitlement programs where we’ve promised more than we can afford. Raising income taxes is similarly unpopular. Instead, our elected representatives can use the VAT to raise the price of most products that the middle class purchases—and collect hundreds of billions in additional government revenue that spares them from reining in excessive spending.

Writing in Politico on October 17th, 2010, Maya MacGuineas–the director of the Committee for a Responsible Federal Budget–described different scenarios that could trigger a US debt crisis:

We have already seen how quickly markets can turn against overly indebted countries. While the United States is not likely to become Greece in the immediate future, the parallels are too similar for comfort. The fact is debt investors eventually grow intolerant of countries that don’t have plans to improve their fiscal condition. And markets may eventually turn against the United States. If that happens, the situation could deteriorate very quickly.

Read the whole op-ed at CNN Money.

The federal government currently levies an 18.4 cent tax on each gallon of gasoline you purchase for your car (unless it’s diesel fuel, in which case the tax is 24.4 cents). The Congressional Budget Office estimates that raising the tax on gasoline by 50 cents per gallon would bring in $600 billion in additional revenue in the next ten years. However, it would also raise the cost of a 10-gallon fill-up by $5.

Most federal employees have three separate retirement accounts: a 401K-style plan, a federal pension, and Social Security. One recent op-ed from progressive think tank Third Way estimates that, for each $1 a federal employee contributes to their pension account, taxpayers contribute $14. Some have suggested increasing federal employees’ contributions to their own pensions as a way to reduce taxpayer liability and the national debt.

Writing in The Hill on September 21st, 2010, Sen. John Thune of South Dakota argued that  reducing the deficit should be a top priority of Congress, and offered suggestions on how it might be accomplished.

We are witnessing a massive increase in the amount of borrowing, the amount of spending, the amount of debt and the growth of government in Washington, D.C. We need to start tackling this debt, and we need to start doing it now. (…) The single most important thing Congress can do this year is to clearly state to the American people that our problem is not that taxes are too low, it is that our spending is too high. The only way to fix that problem is to cut spending.

Read the whole op-ed at The Hill.

The former director of the President’s Office of Management and Budget (OMB) made waves on Tuesday, September 7^th, with this provocative thesis in The New York Times: Congress should extend the Bush tax cuts for the next two years, for Americans of all income levels, and then end them completely.

Why is this controversial? President Obama has made clear that he’s in favor of extending only the tax cuts for individuals making less than $200,000 a year (and families making less than $250,000 a year)—but doing so permanently.

The President and his former appointee both hold concerns about our country’s rapidly rising $13 trillion national debt. And rightly so: there are serious personal consequences for all Americans from out-of-control deficit spending.

There’s a difference of opinion as to what percentage of our total taxes wealthy Americans should shoulder. Some favor a “soak the rich” approach to debt reduction. As the above chart shows, the top one percent of income earners already pays 40 percent of federal income taxes.

The chair of President Obama’s debt commission (and former chief of staff to President Clinton) Erskine Bowles, recently warned that Congress can’t tax its way out of a national debt crisis. You can read elsewhere on this website why he’s right.

Instead, Congress needs to stop spending its way to over $3.5 billion a day in new debt. No one has suggested these spending cuts will be easy; but unless we start soon, higher taxes for everyone won’t be one unpleasant option – it will be the only option.

Some proposals suggest letting the Bush tax cuts expire for those individuals in the top two tax brackets. That covers individuals currently earning ~ $171,000 or more, and families earning ~$209,000 or more. Opponents point out that individuals making $160,000 or more already pay 60% of all income taxes.