And just who pays for the interest on those Treasury bonds? Why, the rest of the government, funded by taxes and borrowing. Money is fungible. As I said before, if we charged the tax but didn't provide the benefit, the government would have a much rosier financial picture.

Consider the case of the hypothetical state of Columbia. Columbia decides to introduce a lottery to pay for improvements to public education. Of course, if the lottery earns less than the amount normally spent on public education, it merely replaces the dollars previously allotted from the general fund while freeing up those dollars to be spent elsewhere. Let us assume that the crack legislative team that wrote this included a special provision that - should the expenses of public education be lower than the money raised - the money must be saved, by buying state bonds. Money is saved for a long rainy day, for decades. Finally, the day arrives that the expenses are greater than the tax collected. Now where does the money come from to pay those expenses? Well, the public school system redeems some bonds. Where does the money come to pay off the bonds? From the rest of the state government, which has to collect it in taxes, borrow it from elsewhere, or cut it from the funding of other programs - or cut education until it starts to provide surpluses again. Borrowing money from yourself is a neat trick that sovereign states can get away with longer than anyone else, and it was critical to get people to support SS, but the program has always been supported on current revenues, and when it can no longer depend on those, it will start to take money from the rest of government.

There is something wrong with your link. But let's say that number is right for the federal government. Add in state spending, which obviously differs by state, but let's say New York. In 2010 New York state spending was $283 B with a state GDP of $1114 B, which means state taxes had to be about 25% to cover the spending. (New York seems to be pretty typical, e.g. Alaska 36%, Mississippi 28%, New Jersey 21%, Oklahoma 21%, Oregon 26%, etc.) For New York, 26.9% and 25% is 51.9%. Alaska would be 62.9%. Admittedly it looks like the typical state is in the neighborhood of 50% and I claimed 60%, but it's hardly "less than half of that" and there do exist states with total taxation in excess of 60% of state GDP between state and federal taxes.

Taking a 10% deficit as the baseline also massively overstates the structural problem. Yes, the past 2 years have had those ~10% deficits, but unless you're predicting that the economic slump that we're just now starting to recover from will go on in perpetuity, or get worse, it's not a reasonable baseline.

The 10% deficits are the current reality. Unless your point is to just continue to run those kind of deficits today and for the next few years and then try to pay for them with tax increases five or ten years from now?

Moreover, there are differences between today and recent history. Right now debt as a percent of GDP is higher than it has been since the end of WWII, and unless we make significant cuts today it's going to get worse before it gets better. It's already about twice what it was when Regan took office. The only reason the interest isn't a present catastrophe is that interest rates are so low, and if the economy starts to recover then interest rates go back up and servicing the debt is going to seriously cut into the tax windfall that economic growth might otherwise produce.

Add to that the baby boomers retiring and removing their productive capacity (and income tax payments) while at the same time putting severe stress on social security and medicare as they start collecting rather than paying in.

This is just accounting shenanigans. If there was a cut in social security or medicare then the tax money currently going to those programs could be spent in reducing the deficit. The fact that you would, as a matter of accounting, end up reducing the social security tax and raising the general income tax by an equivalent amount in order to bring it about changes nothing about the actual impact of the change: Money distributed in social security checks is money that isn't, and could be, spent covering the deficit.

Let's think about that for a minute. Right now, between federal, state and local taxes, governments in the US collect about 60% of GDP as tax revenue.

For the last couple of years the federal deficit has been a little over 10% of GDP. So if you want to balance the budget by raising taxes, you have to raise the 60% to 70%.