The problem I see is that continuously talking about what percentage of the GDP that national debt is makes people see a threshold that isn’t really there. Some people are going to be thinking “Okay, so disaster happens when the national debt gets bigger than the GDP. Got it. But our national debt is only 80% of the GDP. So we’re safe. We can keep borrowing more money until we hit 99%.”
A related problem is that we are weak as I mentioned above. We’re almost certainly going to keep borrowing more money and we will cross the GDP line. And the world won’t end. That will cause some of these same people to think “Great! Those so-called experts were wrong. We were able to borrow more than the GDP and survive. I guess this means we can borrow all the money we ever want and there will never be any bad consequences.”
The reality is the experts aren’t saying this. It’s just non-experts wanting a simple answer.
The debt ratio isn’t something where 99% is good and 101% is bad. It’s more like smoking cigarettes; the more cigarettes you smoke, the greater your chances of getting cancer. But no doctor can tell you which cigarette is the one that will kill you. Smoking a hundred cigarettes a day is worse than smoking ten cigarettes a day. But there’s no strict limit that says you’re safe if you only smoke twenty-five a day but you’ll die if you smoke twenty-six.
I don’t know what your political alignment is, but the clause I’ve bolded is a perfect example of the deliberately misleading silliness we’ve come to expect from right-wingers.
WHY do the top 1% pay so MUCH in taxes? Spoiler alert: It’s because they have so MUCH in income. The “high” taxes they pay do NOT redress the huge (and growing) income and wealth inequality in the U.S.A. — they are a symptom of it.
As the rich get richer, they pay (due to GOP tax cuts and loopholes) less and less percentage-wise, but more and more when expressed the way you have, as a percent of total taxes. That figure (40%) seems huge because their income is huge.
@ spifflog — Forget, for the moment, the question of whether taxes on the rich are too high and answer me this: Do you see why framing the statistic as you did is misleading?
And of course, as Jonathan Chance points out, the right-wing misleaders who came up with that stat carefully ignore regressive sales and payroll taxes.
The Top 0.001%, BTW, pay, all by themselves, about 6% of ALL federal personal income taxes. Billionaires must really be oppressed, hunh?
Fair enough. I certainly wasn’t implying such a “step function”; indeed I suggested that Japan, with its Debt/GDP > 2, may be in much better financial shape than the U.S. The point is that a debt quote ($16T or $21T) is *meaningless *— and cannot be compared with that of other countries, nor with the U.S. historically — until divided by some denominator. GDP is a logical, readily available denominator.
So I, with my middle class income, paid more tax from 2008 to 2015 than GE did.
Regarding the military, the US spends almost as much as the rest of the world combined. That’s nuts. We spend all this money on military hardware and Vladimir Putin takes over the US government without one shot being fired. We could cut Medicare spending by simply allowing them to negotiate drug prices, but thanks to Big Pharma, that will never happen. We gotta stop being nuts.
Yes, the debt is a problem, but it’s really only going to show itself in a fiscal emergency, and by then it may be too late. It’s a bit like the US.gov has a credit card, with an unknown limit. We’ve charged $21T to it, and we’re not sure how much more we can charge. While the economy is cruising along relatively happily, that’s not a critical problem, but if there’s an emergency expense that arises, we may find that we’ve finally hit the limit.
If you want an interesting statistic, check the rate of change of the percentage. The United States is the only country where the national debt:GDP ratio is rising. Every other country is working on lowering the percentage of their GDP which is equivalent to their national debt. We’re the only country where the problem is getting worse.
Jesus Christ, it is nothing at all like that. You’re trying to interpret the nations economy through the only economic lens you’re familiar with, a credit card. And that’s absolutely wrong. For you, money can only be spent if it can be earned. For you, every dollar you become indebted, you must eventually pay back. For you, money is a tangible asset, a store of value, which you must trade something else of value for – your labor, your property, your skill, etc. None of this is true for a government like the United States.
The United States issues it’s own currency. It also only spends it’s own currency. To you, money is a store of value. To the US government, it is not a store of value. How could it be a store of value, when the government can alter the amount of it at will, either by increasing taxes and destroying it, or by creating and spending more of it into the economy, thereby increasing its supply? to the US government, money is a tool, not a store of value. The governments role is to use the supply of money to regulate the economy. In a recession, it can use its enormous power to connect idle labor with idle resources to create real economic growth by spending money into the economy. Government can will dollars into creation, and then use it to buy things from people and businesses that are otherwise experiencing no demand in a down economy. This isn’t financial voodoo, it’s using money as a tool, the way a government is supposed to use it. When the economy is hot, and unemployment is low, then government can do the opposite, take money out of the economy to avoid inflation.
The major point here is that government is not revenue constrained, and that debt to the government is absolutely irrelevant, because, and this is the real kicker if you’ve followed me this far – the national debt is an account artifact, an irrelevant holdover from the days when we spent in a currency we did not control, like gold. Today, the national debt reflects the number of dollars the government has spent into the economy – and each one of those dollars exists as savings in the non-government sector. In other words, if the government spends $1mn into the economy, it’s you and I who are the beneficiaries. That money is used to buy real goods and services, and we are now $1mn richer. The call to “pay down the debt” is literally a call to say “we want the government to remove money from the economy to reduce an irrelevant accounting artifact that scares us because we’re ignorant.”
The only problem we have is the idiots who block spending when the economy is bad while spending like sailors when its good, the literal opposite of what the government should be doing.
No, I think he’s got a valid point. The issue here isn’t the amount of money, which as you point out is theoretically unlimited. The issue here is the amount of credit.
Any entity, individual or organization or nation, has an ability to borrow money. The amount is flexible but it isn’t unlimited. The amount of money we’ve borrowed on a normal basis will reflect the amount of money we’ll be able to borrow in an emergency.
If you use up a lot of your credit on your day-to-day living, you may not have enough credit available when you need to pay for some unexpected major car repairs. If a country uses up a lot of its credit on its year-to-year programs, it may not have enough credit available when it needs to pay for some unexpected major war.
I’m not going line by line on these things. We have a global military, and the American people generally seem to enjoy the world shaped by the west or the United States. You seem more confident than I that it’s easy to trim medical costs significantly as well. If it was all hand wave-able and easy, it would have been done already. The debt has been a growing issue for 50 years, with both Democrat and Republican Congresses and Presidents. The only common denominator is the American people. We seem unwilling to sacrifice or compromise.
I’m sorry that you’re frustrated that I’m not clearly a Republican so that you can open fire on me. I’m a middle of the road independent. I guess it’s easier if I was right wing for you. As I stated, I don’t think there is an easy solution. I think we need more tax dollars and a smaller federal budget. But I don’t think taxing the rich and cutting DoD in half are the golden eggs that you think they are.
To put a finer point on this, the top 1% have average annual incomes in the general neighborhood $1.5 million (though the starting threshold for joining the 1% is substantially lower). The bottom 50% all have incomes under $40,000.
Or to put it another way, if you put all the annual income of the top 1% in one bucket, and all the annual income of the bottom 50% in another bucket, and then weigh each bucket; the rich people bucket would weigh about 50% more than the lower income bucket.
The inequality of the income tax system is at best a severely watered-down imitation of the inequality of incomes in America.
(To say nothing of the fact that non-wealthy people pay other types of taxes, like social insurance taxes, that aren’t included in this discussion.)
Yes, like corporate income taxes for example. But I’m raising this as an issue of how talking about income taxes as being representative of all taxes is more misleading on the state of taxation of lower incomes.
So, a wealthy person may pay income, corporate, excise, and social insurance taxes, and everyone agrees that it adds up to a good chunk of their income (even though people may disagree whether that overall tax rate should go up or down).
And a poor person may pay income, excise, and social insurance taxes, but because they generally pay nothing in income taxes, people often misread that and end up thinking that poor people pay nothing in Federal taxes. So in fact, there isn’t an agreement among Americans that poor people pay Federal taxes, because some people mistakenly think that income taxes are the only kind of Federal taxes.
The debt is like a pile of gravel - you can keep dropping pebbles on the pile, and the pile keeps getting taller - until suddenly the pile collapses. The collapse is completely unredictable, as it is the result of a complex distribution of stresses throughout the pile. You can predict that you are getting near a point where a collapse *could happen, but you can’t predict which pebble will cause it. This is why financial crises are never predicted with certainty. All you can know is that as you get nearer the point of collapse instability and risk grows.
Another problem with high debt is that it constricts government options when there is a crisis. For example, ‘Stagflation’ in the 70’s was eventually curbed through the Fed imposing high interest rates. But when you have a 21 trillion dollar deficit, each point of interest causes the government to incur another 210 billion dollars in interest payments. Raise interest rates by 3%, and after the debt is refinanced the interest on the debt will go up by about as much as the entire military budget. And raising it to 10%, say to compensate for inflation or a collapsing US dollar would bankrupt the government. So that option is now off the table.
One of the triggers for a debt crisis would be a treasury auction that fails to clear in a big way. A Chinese recession or cash crisis could easily result in something like that. Which brings me to yet another bad effect of a huge debt that requires foreign financing - it creates a coupling that increases risk in that an economic failure in any of the connected countries could bring the whole house of cards down. Systemic risk goes way up.
The debt and deficit are critical problems. They won’t be addressed until there is a crisis.
No, anyone who works pays social security taxes. But the wealthy stop paying at around $110,000 in wages. So they pay a smaller amount as a percentage than the bottom feeders.
In addition, if the investor class earns income through bond interest and dividends there’s no social security tax at all.
Also, if the earn income via capital gains on investments they pay 10% and not the general income tax rate.
Can you help me understand the bolded comment? I get most of the first part of your post but am struggling with the second half.
I just want to make sure I understand what options a government has regarding its existing debt obligations - 1) pay them off with taxes collected, 2) print new money to pay them off, 3) default on the debt, or 4) issue new debt to pay off the old debt. Is there something else they can do? It seems like each of these in isolation has some sort of drawback - 1) reducing money supply, possibly having negative effect on economy, 2) reducing value of existing dollars in circulation and existing government debt, possibly causing inflation, 3) erodes confidence in the government’s ability to pay back its debts, and 4) depends on finding buyers for the debt. I am sure there is a balancing act of these that can be struck, but wouldn’t a government having a larger debt result in the balancing act being more precarious? In particular, if a government isn’t able to use option 4 to cover its debts and has to resort to one of the first 3 options, wouldn’t that further reduce the value of that government’s debt in potential buyer’s minds, resulting in a vicious feedback loop?
Also, I don’t really understand your last sentence - if the debt is really “absolutely irrelevant”, what is the downside of “spending like sailors” when the economy is good?
Let’s be careful on this one though. Yes social security is capped at his income capped at $128,400, but the payment of social security is capped as well.
I recently ran some numbers for a friend who was trying to decide if he would work one more year before he retired. His contributions would be capped (at $127,000) and he would pay about $8,800 for social security that year and his employer would match that. His net benefit for this additional one year? About $590 per year.
The benefit of social security is very progressive due to the pay out structure. Using social security to argue that the poor are being taken advantage of isn’t a good argument.
