It should all be put in context, of course, but in general, poor people pay a higher percentage of their incomes (~8%) in payroll taxes than do wealthy people (~6.5% or so). I wouldn’t go so far to say that the poor are taken advantage of, but it’s a quirk that results in payroll taxes being somewhat regressive, when for the most part the rest of the Federal tax system is progressive.
If I’m understanding his views correctly, he’s saying debt is not a problem for a government because it (unlike private entities) has the ability to print more money as needed.
This is technically true but it misses an important point. Governments don’t want money; they want wealth. Wealth is generally equivalent to wealth but it’s not an absolute relationship. Governments can create money but they can’t create wealth. If they overproduce money, they will end up reducing its value and not gaining the wealth they were seeking.
To make it more clear, a government doesn’t want a hundred billion dollars. What it wants is the things it can buy with a hundred billion dollars. If the government simply fires up its printing presses and creates a hundred billion dollars out of nothing but paper and ink, it will find that the hundred billions they now have will no longer buy the things they wanted.
And the same is true of the peopke who lent the U.S. the money in the first place. They expect the wealth represented by their money to grow at the interest rate promised to them. If you are in the habit of devaluing your currency by printing money to pay your debt, you will soon find that no one will buy your debt. That’s how you create a financial crisis.
But look at how the payout is structured. Currently, of the Primary Insurance Amount, one receives 90% of the first $926; only 32% of the amount between that and $5,583 and only 15% of that over $5,583. How is this not progressive?
I don’t understand the question – you’re saying because payouts are structured a certain way, FICA isn’t a regressive tax? That doesn’t make sense to me.
these conversations always rotates around the same ways individuals tend to think of the government debt via their household experience. It never changes…
No, not even in analogy.
If there is a private analogy for the modern state, it is much closer to the modern corporation. It is not the household at all.
the reasoning on the government debt from the personal is an act that is economically illiterate.
the perpetual in effect nature of the modern state has the similarities to the modern corporation including the inter-generational aspect.
Excepting the ability to issue currency, there are similarities (more to the oligopoly than the competitive market company, but it is only the analogy).
In fact for those who analyze the government securities for the actual investment, in particular for the borrowers outside of the zone of doubt - that is like the USA - the questions posed are similar in effect to those to the corporate bond.
Is the spending of the borrower (the state, the company) aimed at the productive investment (in the state, it is the infrastructure, the R&D if there is a credible reputation, etc)? Or funding the current operations / the current consumptive type actions? (social benefits is an example)
If there borrower is borrowing heavily to fund the current expenditures that can not readily be characterized as the investment, it is a warning.
the capacity to potentially raise income (in the state, the historical capacity to effectively raise tax revenues - effectively being the important word as many states with the high theoretical rates of taxation have a very poor collection, so it being often argued they would do better to lower the taxes but collect aggressively on the lower rates… of course corruption is usually some part of the explanation for what seems at the state level irrational policies.)
in any case, for the people - the investment bankers and the economists backing them who do this primarily professionally, the analysis I assure you is closest to a Company (close is not identical to avoid the misunderstand), no rational person in this kind of business would analyze the state borrowings in the fashion being talked about here.
it is an assertion from a certain Left oriented economics, it is not widely supported.
A more modest form of the statement is that the modern monetary management has substantially changed the capacity to manage and maintain the debt at the state level. This is certainly a true observation if compared to the 19th century or the classic metallic standards but the argument then becomes “how much has it changed?” That is not obvious.
it is almost never economically rational for a state to “pay off” its issued debts since they serve other economic purposes. the pay down rather than pay off.
The challenge you perhaps face in the USA is whether your ideological positions presently will prevent a rational management of your position.
if this occurs, it is purely a political result, it is not from any fundamental economic situation.
There is plenty of evidence, and some well regarded economic papers that show the harm caused by government debt once it crosses a certain threshold. I believe their was a pretty good paper by Reinhart and Rogoff (or maybe it was Romer and Romer - can’t look it up now) that found that debt in excess of 90% of GDP costs around 1% of GDP growth. They concluded that therefore once your debt was this large, paying down the debt with government revenue had a better stimulative effect than cutting taxes - or that you could raise taxes and use the money to pay down debt without hurting GDP, because the benefit of reducing debt offsets the economic loss from increased taxation.
Christina Romer also pointed out that the stimulus bill would cost the U.S. about 1% of GDP per year because of the increased debt after the stimulus was over, but she felt it was worth it anyway because the stimulus effect would more than offset the cost of the debt over 10 years. Her numbers turned out wrong all over the place, but this was the position of mainstream economists, and Romer was at the time the chair of Obama’s council of economic advisors.
Right wing economists have traditionally been even more hawkish about the debt, but right wing politicians don’t seem to care. And Trump especially doesn’t seem to care. He’s wrong.
Under Clinton, we ran a surplus. Under GWB, we issued a completely unnecessary tax cut for the rich, which alone drove up the deficit significantly, not counting the wars. Under Obama, after the crash, we started with a 2T deficit. By 2015, that deficit had been reduced to 400B. Trump’s tax cuts put us back up to 1000B (1T) in deficits and increasing.
Now, it’s not quite as simple as who is president, but there can be no doubt that the democrats have pursued deficit-reducing policies, and the republicans have pursued deficit-increasing policies.
Take a look at this chart. You say we can’t possibly tax our way out of this deficit, but why not? Simply reversing the Bush tax cuts, combined with winding down his wars, combined with recovering from the great recession would’ve reduced the deficit to almost nothing. And that’s just going back a few years on tax policies, not enacting some sort of draconian cash grab. If, instead of simply reversing it, you added a few percentage points to the tax rates, now you’re running a surplus.
A guy who puts “the rich” in scare quotes as if they don’t exist is almost certainly not middle of the road. For someone who is middle of the road, you sure do spout Republican talking points a lot, and when you’re not doing that, you’re playing the “both sides are the same” card when the Republicans are worse, which is the same as defending them.
Do you think we have to pay off the debt in one year, or something? Imagine, for a moment, that all we did was reverse the Trump tax cuts an the Bush tax cuts. Since the Bush tax cuts account for about a trillion in lost revenue, and the Trump ones the same, suddenly we go from a 1T deficit to a 1T surplus. Boom, we’re on track to pay off the national debt in 21 years. And this isn’t with some huge new wealth tax or anything of the sort - this is simply returning our tax code to how it was 20 years ago.
The idea you’re trying to sell us - that the rich just don’t have the money and we’re all screwed and there’s nothing we can do but stop issuing social security checks - is complete bullshit. Our current deficit can be entirely attributed to the tax cuts made in recent times. The myth that we simply can’t afford anything is absurd. The world is the wealthiest it has ever been, and so is the country. We could probably run a 4 trillion dollar surplus while still being on the left side of the Laffer curve pretty easily. (Not that it would be a good idea, but just to say that we’re not even close to straining).
The idea that we can’t afford anything, and that we’re going to have to tighten our belts is starve the beast propaganda by the people who actually run this country. It has no basis in fact. We’re rich enough that we could be doing so much more.
In the US, we control effective tax rates through deductions to a much greater degree than most countries. So yes, technically our marginal corporate tax rates may be higher than elsewhere, but since we allow a lot more deductions, the actual effective corporate tax rate is actually much lower. Sure, they may have to pay 28% or whatever the number is, and maybe that’s higher than 25% in another country, except they’re only paying 28% on maybe half their profit, which ends up being less than a country where you pay 25% on, say, 90% of your profit. (Numbers made up for example).
The idea that corporations are straining from their tax load is ridiculous. Corporate cash reserves are at a record high. The corporate tax cuts, which were promised to increase salary for regular people and all that (which it did not, and why would it?) just caused their cash reserves to go higher, and having nothing else to do with the money, they just bought back their own stock.
This is a completely artificial crisis. The US has a 20 trillion dollar economy. Eliminating our deficit and eventually debt would require just a small fraction of that to be moved around.
no, there is uneven evidence about the record of the government debt.
there is plenty of the evidence that the debt crises when the government debt is unsustainable is harmful.
the evidence about “harm” is not however clear at all [relative to the just carrying a certain debt level - not the harm from crisis, that is very clear]. Although among the ideological they draw straw conclusions.
It was the first - however they had a serious error that excluded the historical data which rendered their conclusions not strong. It was a very serious data error.
It is more clear that the debt to GDP ratios over the 100 percent at least historically have been very dangerous and tended to lead to crisis.
[it is much safer and non ideological to say that the carrying of debt levels close to historical carrying capacity of the country for sustained periods, is dangerous and raises chances of a debt or a financial crisi]
no, this is not supported as a blanket statement of economics.
It may indeed be true in some circumstances, it is incorrect to assert as a conclusion broadly.
that is not to say that large debt is a good idea or that it is not wise to not carry debt all the time near the maximum carrying capacity.
the cost to GDP proposition is not a strong conclusion due to the data errors.
Here’s what the numbers actually are, according to the CBO:
2000: 236.241
2001: 128.236
2002: -157.758
2003: -377.585
2004: -412.727
2005: -318.346
2006: -248.181
2007: -160.701
2008: -458.553
2009: -1412.688
2010: -1294.373
2011: -1299.599
2012: -1086.955
2013: -679.542
2014: -484.6
2015: -438.496
2016: -584.651
2017: -665.372
It was never as high as $2T nor as low as $400B during Obama’s administration. Also, projections near the end of the Obama administration had us scheduled to hit trillion-dollar deficits again, regardless of who won the 2016 election.
My bad. I actually checked the 438 number (and rounded it to 400B) but the 2T number came apparently just from faulty memory, because I thought we hit that number in 2009 for some reason. Maybe I was factoring in a chart that included war funding outside the normal budgetary process.
The argument that you’re implicitly replying to, that we daren’t raise taxes on high incomes lest those people (and their money) emigrate to some place that will give them a better deal, is one that I hear occasionally and have grown to hate. We’re supposed to all be Americans, out of many, one; and we’re supposed to care about and give something of ourselves to make the country greater. We ask some people, usually somewhat disadvantaged, to risk their lives in defense of the country; we can’t ask others to give up some money? Three soldiers were killed in Afghanistan last week; if they can sacrifice their lives, the Walton family can sacrifice some money.
Don’t like it? Want to be a free agent and take your precious job-creating skills someplace that offers you a sweeter deal? Fine, don’t let the door hit you in the ass on the way out.
Yes, it is.
You’re focusing on what purposes the money is being borrowed for. I’m focusing on the act of borrowing itself.
Borrowing works the same regardless of whether it’s an individual, a corporation, or a government - you’re asking somebody who has money to give it to you for a period of time in exchange for the promise of give it back. That’s the basic definition of borrowing.
The problem is any time Democrats adopt a financially responsible program of paying for what we spend, there are out-of-work Republicans promising that if they get elected back into office, they’ll deliver something for nothing. And voters keep foolishly believing this is possible and putting the Republicans back into office where they undo the responsible policies and pile on more debt.
I think we need to enforce tougher laws on people becoming tax exiles. Rich people should not be allowed to transfer their citizenship to some third world tax haven while continuing to live in luxury here in America.
You want to be a tax exile? Fine, but you have to be a regular exile along with it. You want to renounce your American citizenship and become a citizen of Brunei? Then go live in Brunei.
The GWB years squandered a good opportunity to pay our debt down. And then they handed Obama a situation made awful by the Great Recession, where big borrowing was needed.
I think the current economic climate is a good time to lower our debt load. The economy doesn’t need the stimulus from tax cuts or even spending increases. But Trump and the Republicans have it going in the wrong direction.
Actively cheering for rich people to renounce their citizenship and leave the country, and the tax base, is a bit like cheering to kill the goose that lays golden eggs.
I’m reminded of the end of A Few Good Men when Col. Jessup is on the witness stand talking about honor, code, and loyalty, while he’s lying his ass off and letting two of his men face the punishment for following his orders. His version of loyalty is something he gets, not something he gives.
I am not cheering for rich people to renounce their citizenship and leave the country; only for those who see this country for what they can get from it, rather than what they can give.
You think the non-rich socioeconomic classes have many people that see this country for what they can give?
I’m not actively cheering for anyone to leave. Unlike a lot of Republicans, I’d even welcome new people into this country.
But if you don’t want to be an American, why are you living in America? Giving up your American citizenship just to get a lower tax rate strikes me as unpatriotic.
And remember the guy that owned the goose didn’t have anything to do with producing any golden eggs. The goose did all the work and then the owner came along and took all the gold. It’s not an analogy you should bring up when you trying to extol capitalism.