The new employee only provides an additional $10 in tax revenue, not an additional $90 in tax revenue.
And don’t forget that Obama sponsored and signed very large tax cuts as part of The American Recovery and Reinvestment Act of 2009. But the GOP always characterizes those bipartisan tax cuts as excessive Obama “spending.” :smack:
Okay, these random math problems that you have decided to mention are correct. Good practice on your part. Good job.
Now, can you see at all how they are in no way related to the problem that I have presented, or do we need to go through another refresher on word problems?
No, that’s a bad idea. It may seem like a good idea to you, but it really isn’t. That is the sort of thing that having a basic understanding of math would really help with.
Yes, you mentioned that, but you apparently do not understand inflation. Tax revenues as a matter of purchasing power do not go up. The dollar amount goes up, but the purchasing power of each of those dollars decreases.
What effect do you think it has on debt? If you have $100 in debt, and inflation doubles, then you still have $100 in debt.
It has no effect on the dollar value of the debt, only on the purchasing power of the dollars that are needed to pay that debt.
But we are still in pretty remedial economics here. You have completely ignored the fact that with a spending freeze, the debt still gets bigger until inflation manages to eat away at the deficit, which will be growing even if you freeze spending, as you cannot freeze interest payments. So, if you just freeze overall spending, then you will have to make actual dollar cuts to other programs to make up for the increase you are paying in interest.
If you freeze spending at current levels, how long until the deficit goes to zero? What is the debt at at that point? What are the interest payments on that debt?
Be specific.
Once again, you seem to have made the decision to ignore part of my post. I will answer your question about the major reforms we can make to our educational system, and some cost savings that may come of that, if you give the specifics of how you will cut 50% of the purchasing power of military spending over the next 20 years.
Cite? Not with CPI or BEA’s GDP Price Deflator. Tax revenues as a percent of GDP are relatively flat, but real GDP isn’t. Freeze nominal spending (I’m not advocating this) and real revenue will eventually exceed it, all else being equal. Freeze real spending and you get the same, just slower.
But why should you get a bigger break on federal taxes just because you live in a state that has an extremely high tax rate but hides it through federal tax right off. Puts more pressure on high tax states.
I was skimming the thread just now and this caught my eye:
No, I didn’t read the cite, nor even click to read the excerpt in context, but let’s stipulate the factoid for the moment.
Do you read this cite that the U.S. GDP has increased by 126% — more than doubled — in the past twenty years? That’s More than Doubled with an ‘M’.
If taxes have roughly doubled while GDP more than doubled, then taxes as a share of the pie have declined. Can you make sense of that? Do you understand that taxes as a share of the total pie is the appropriate measure?
septimus, picking just two points out of fluxuating time series isn’t appropriate. I already linked to tax receipts as a percentage of GDP. Yes, it’s lower in 2018 than in 1998, but that’s because 1998 was unusually high.
It’s like how global warming didn’t pause after 1998.
1997 and 2017, sorry. Obviously this year’s numbers aren’t out.
FWIW the average receipts as percent of GDP over the last 70 years was 16.84%. We were at 17.02% last year, just slightly above average.
Fine. Do you agree that tossing along the factoid "Did you read the cite that tax revenues have roughly doubled in the past twenty years?" is silly, useless and suggestive of innumeracy? That was my only point.
Not really. I wouldn’t call it the most useful statement, but it’s not useless. If the trends stay the same, tax revenues and GDP will continue to go up, roughly in step. Both faster than inflation. So freezing nominal, real, or even per capita expenditures should all reduce the deficit.
That’s not a policy endorsement, mind you. There are some things I’d spend more on. Some less. And I’d be fine with increasing revenue. Even from my pocket.
A revenue or GDP doubling over 20 years is a 30% real increase because $1 (1998) ~ $1.54 (2018).
Yes that’s CPI, and I know, I know, we don’t deflate GDP with CPI, but it’s close enough.
But … but … but …
Inflation is NOT the only reason for GDP rises. Population rises. Productivity rises. Measuring sectors as “portion of the pie” encompasses all of these.
So where you wouldn’t see a decrease in deficit is if you locked spending as a percentage of GDP. I don’t know that anyone has suggested it though. That would still be increasing nominal, real, and real per capita spending.
Debt is also best expressed as percentage of total GDP. Deficits, however, to be sustainable, should not exceed GDP growth. (Before long, interest on debt may exceed GDP growth in dollar amount, and revenue will need to exceed non-interest spending just to continue growing the debt sustainably.)
But more importantly:The way to reduce deficits is to have the will to reduce undesired spending and to increase taxes.
Playing with numbers isn’t the point. We must set priorities, fashion some sort of consensus and exert political will power. The reasons, if any, to cut military or Medicare spending aren’t because of numbers — it’s because the costs of programs exceed their value. The reason to raise taxes isn’t because we hate the rich — it’s to pay for the public needs our people agree on. (Yes, we have a severe political impasse now, but to make our budgeting a matter of Kindergarten arithmetic is to give up.)
The trend in recent decades has been to strip non-military spending to the bone and cut taxes. Then cut taxes some more. And the “compromise” now is to cut spending further?? :smack:
At this point, my only response is the single word: Wrong!
The financial news today lends support to some of my claims in this thread:
Dow falls the most in 2 months on fears of rising rates as 10-year yield hits highest since 2011
The takeaways are
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Bond rates continue to rise as predicted. I don’t see how they could go the other way. Being right doesn’t change the fact that I am an amateur economist though.
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This attracts money away from stocks, depressing the market. That’s what happened, and this article at least blames bonds.
So, spending on interest just went up ‘by itself’. Can we muster the will to tackle this issue, or will we be so busy arguing with each other that we don’t notice when we go over the cliff?
Interest rate hikes and bond yields aren’t the problem; they’re just reflecting the assessment of risk in the economy.
It’s why the rates are going up that should be of concern: the most fiscally reckless government in American history, and we’re not even 2 years in.
Remember when Republicans cared about the debt? And were free trade? And called critics’ claims about their positions “Mediscare”?
RIGGED!!!
The GOP will continue to blow the budget out of the water and then force Americans to choose between the elderly freeloaders and the heroes who sign up for military service.
FWIW, this has no effect on the points I tried to make. The “cycle” is in the 7th inning, as Dalio put it, so the bull market is losing some zest. The interest rate rises are no surprise — the Federal Reserve board has explicitly stated its intention to continue raising short-term rates.
My quibble is with the idea that this is somehow all a boon for the super-rich. Note that bond prices fall when yields rise, so smart money isn’t rushing to buy bonds right now. Even my dumb money has been selling bonds in recent months.
Where do we go from here? In principle, the Federal Reserve might steer the economy perfectly, keeping it humming near capacity, with neither stocks nor bonds plummeting or soaring. The higher interest rates will mean Treasury pays out an extra 4 or 5 Trillion dollars in interest over the coming decade, but what’s “chump change” among friends? :rolleyes:
However, the chance is likely that a shock will come along to disrupt economy complacency. A tariff war? Shooting war? Political impasse? Financial crisis? Any of various things that might cause a price rise in producer goods? A chance market fluctuation that gets exaggerated by excess leverage or even computer algorithms?
And if/when that crisis comes, the U.S. will not be well-equipped to handle it. Using tax cuts or spending to stimulate a recovery will lead to dangerous rises in the already-large debt: this was always the big stupidity of Republican profligacy in good times.
And because the working class has been squeezed, by reducing real wages, by making good health insurance hard to come by, and by fomenting racial and political hatreds, recovery from the next crisis may be difficult: the “can-do” work-together American spirit may be in short supply. Even the billionaires will share in the pain: One now eyeing a 190-foot yacht may have to settle for a 160-foot yacht if there’s a major recession.
TL;DR: Yes, the tax cuts for the rich were a very bad idea.
You are right, I was simplifying a bit more than I should have, but I was worried that even with that simplified it would still be too complex for the level of discussion that was involved.
There are many macroeconomic factors that would cause the purchasing power of the revenue to go up, but many of those are not relevant to this discussion.
First off, the main reason that the real purchasing power could be going up with inflation under a freeze would be because people’s wages are getting inflated, putting more of their earnings into a higher tax bracket, meaning that they end up paying more in taxes, even if their purchasing power has not gone up. So, to avoid a freeze being a tax increase on the middle class, we will also need to have tax cuts or adjustments, which would decrease the effect of the increasing tax receipts.
The second reason that real purchasing power could be going up over time under a freeze is because of a growing tax base. This means a growing population. We do not have a growing population. Without immigration, we have an aging and shrinking population. Over the years that are cited is when we had a young and growing population. An aging and shrinking population means less tax revenue, not more. Now, we could fix this by encouraging immigration, but it is the same party that is for reducing taxes that is against immigration.
The last reason that we could have a growing purchasing power of the tax revenue under a freeze would be because the economy is actually growing faster than both inflation and population. This can happen, but it is not guaranteed to happen. It does require the proper environment for small businesses to open, develop and grow, and it needs the large entrenched corporations that are developed and in employee shedding and profit sharing mode to get out of the way. This is not the environment we are in, everything is stacked in favor of the large entrenched cooperation, and against the small business. With the current fiscal policies, I do not see our economy growing, as that requires innovation and entrepreneurship, not a “I got mine” mentality.
Finally, as the interest on the debt is a pretty substantial portion of the deficit, and the interest on the debt will increase no matter what we do with freezing spending, I do not share the confidence that it will not grow faster than revenues do, and it may very well end up being a larger and larger share of the deficit, until it is all of the deficit, and then some, where we are borrowing to make interest payments. There are many, many factors involved in determining when the deficit would actually start shrinking, and most of them deal with the actual fiscal and economic policies that would be implemented by the same government that decides that freezing spending is the best way of dealing with eh deficit, so would be unlikely to be making any active decisions that would positively impact revenues. Do you have any thoughts on when the deficit would go to zero under a freeze? I personally think it will take much longer than is thought, and could very well never even start shrinking. If interest payments get greater than the deficit, it will never be paid off.
Can we at least agree that a spending freeze is a spending cut, even if some of the increased revenue retains a small amount of its purchasing power?
A nominal spending freeze is absolutely a real spending cut. So yes I believe we’re in alignment there. We could instead institute a real spending freeze, which would keep real spending constant. However, as I believe septimus stated or alluded to, if we assume business as usual, that real freeze would still results in a real cut to discretionary spending because mandatory spending will continue to take up a larger portion of the budget. And I don’t see our friends on the Hill allowing a flat (nominal) defense budget. So the “everything else” portion gets smaller and smaller.
Let’s do that math. It depends on several details of the scenario.
If business as usual (i.e. no recessions – good luck with that):
GDP (nominal) keeps rising along its current trend since the end of the last recession. (If we extend the current GDP trend, we get about a 3.79% increase each year.)
Revenue as a percent of GDP stays relatively flat (~17%, although if it’s flat then the exact number doesn’t matter much)
So revenue increases at about 3.79% each year.
For 2018, we have a requested $4.094T expenditures, estimated $3.654T revenue, with $440B deficit.
For debt, let’s include intragovernmental holdings, so currently about $21.6T.
My napkin math has us revenue-neutral some time in 2021. Until then, the nominal debt increases. To over $22T. Then it takes until about 2036 to drop the debt to zero. Meanwhile, 18 years of inflation drop our real spending, although the amount of the budget going to debt service decreases too. So you could figure out what real non-debt spending works out to. It’s currently what, 7.4% of spending? I expect inflation to be greater than that.
You can, of course, plug in different number. Are the “business as usual” assumptions good assumptions? GDP is roughly the sum of productivity times people. Real productivity has been increasing, on average, albeit slowly. And population continues to increase, despite low birthrates and our orange friend’s proclivities toward dangerous brown people. So this:
is 100% incorrect unless you don’t think immigrants are people. And I don’t think you think that, so I’ll chalk that one up to poor word choice, as you do acknowledge immigration in the next sentence. They’re still coming here. There are nearly 2M more in the country now than when the current presidential term started (FWIW that’s a steeper rise than the first year and a half of Obama’s presidency.) That’s net, so it includes immigrants with less-than-legal status leaving or getting kicked out, older foreign-born people dying, etc. The foreign born population is the highest its ever been and is trending up. The US population is the highest it’s ever been and is trending up. The civilian labor force is the highest its every been and is trending up. Per capita real GDP is the highest it’s ever been and is trending up.
Now all of the above may change if the economy goes haywire. When it goes haywire, rather. I fully expect it to. Because “business as usual” includes the occasional recession. Neither of us can predict that though. And, over a long term, the recessions are small blips to all of the above trends.
You’ll need to wait a couple years for SBA to catch up with the data, but as of 2016, business starts were exceeding business exits by about 35k. Per quarter. Since this isn’t standard BLS data like the above, here’s a cite: https://www.sba.gov/sites/default/files/advocacy/2018-Small-Business-Profiles-US.pdf
But I’m sure your conclusion about the business environment is backed up by some other data that have eluded the rest of us. Please do share.
Correction: there was a spike in March/April this year.