MakingDebtPaymentsUS shows that the US in a financial pickle. And that wasn't even factoring in the Medicare & Social Security problems that will be arriving in the next decade. So what can the US do about this?

We know that we have to at least pay the interest on our debt and we know that we need to be budget neutral. Our 2007 estimated budget deficit is $2.2e11 which when added to our interest due of $3.8e11 ( $8.5e12 at 4.5% ) sums to $6.0e11 that we at minimum need.

So where can the money come from? Your choices are any combination of:

  1. Raise taxes on current taxpayers ( soak the rich )
  2. Cut services (foreign aid, federal subsidies, war, etc.)
  3. Allow more taxpayers into the country ( immigration )
  4. Legalize, regulate, and tax the ~$8e11 underground economy ( drugs, prostitution, gambling )
  5. Have the IRS hire Steven Levitt

Points 1 through 3 are well-trod. The fourth makes sense to me, but the Democrats would really have to get their act together ( i.e. get cozy with libertarians ) to pull that one off. The last point need further elucidation.

Historically, the IRS has gone after big tax evaders, because as Dillinger put it, that's where the money was. But with modern data collection and analysis ( Steven Levitt ), they can go after the Long Tail of small schemes. And if Congress removed subsection (e) from the False Claims section of US Code, the cash back should entice more witnesses to narc on tax evaders.

All told, I think we could gain the needed $6e11 in additional revenues between the last two points, in addition to cutting off the economic lifeblood of criminal enterprises in the US.... but that's really a big guess, we wouldn't know until we tried.

New news 2006-12-19:
Just saw that marijuana is America's biggest cash crop. That's a lot of tax money that we're just giving away to criminals.

More news 2007-02-19:
According to Smartmoney, the IRS will now pay for turning in tax cheats, but only for $2+E6 offenders. They still don't have a way of efficiently collecting the small fries yet.