Who is going to be paying taxes????
Right now, 2008 is on track to be the largest government deficit in US History.
Looking forward things seem much worse.
Banks/Financial Institutions make up about 1/3 of the earnings of the S&P. Many are making a fraction of what they made recently and many more are losing money. Airlines are losing money. Auto Manufactures are losing money. Home Builders are losing money. Restaurants are making much less or losing money. Hotel Bookings are starting to decline. Retailers are selling and making less. Health Care profits are contracting. Property Taxes are declining. Permit Fees are evaporating. Sales Taxes are falling. Gas Tax revenues are falling. Port Duty Fees are falling.
Here is a BIGGIE. Let's day the auto industry lays off about 20% of its workers. That is many billions in salaries that is not being paid and not paying taxes....especially if those workers can't find replacement jobs. Same thing with the 20% of airline workers. Or 60% of residential construction workers. Or 80% of Mortgage Finance workers. Or 20% of Wall Street Workers.
When the economy contracts, government revenues contract.
Basically in many industries....20% or more of the workers are being let go without being replaced. Imagine the income taxes that will not be paid.
Most municpalities, counties, and states are very leveraged. A 20% reduction in revenues will inevitably bankrupty many. Just how many is unknown. Thank goodness for MBIA and Ambac....at least they are insured in most cases.