NO, NO, NO, NO, NO…lets keep on the same path that Obama has set, just print some more money and pay off the debt!!! Why works everytime, just like when I was in college and used one of my credit cards to pay off another credit card. BRILLIANT!
They don’t actually ‘print’ money to pay off the debt anymore (if ‘they’ ever actually did this in the past).
Just sayin’…
-XT
OK, fine. From the rest of your post it sounds like we could restore income taxes to the 2000 level, keep payroll taxes where they are, end all Medicare & Social Security payments today, & we’d dig out before we’re dead.
Help me sell that to the United States of America. Tell me there’s a way out that isn’t a) default &/or b) revolution & collapse.
I picked $2 million/yr out of the air. I don’t mind the cutoff for incomes getting a a tax increase being a tenth of that, even a twentieth.
And I certainly don’t mind gutting Medicare in its present form. I’d happily end all Medicare payments AS OF ONE HOUR AGO. I refuse to support an non-universal single-payer plan.
If getting to where we can start to shrink the deficit takes an additional 15% of income taxed on all incomes over $200 000/yr, & 12% on top of that on all incomes over $1 million/yr, & another 10% more on all incomes over $5 million/yr, etc., plus a net worth tax of 1% a year on all estates over $500 000, then that’s what I’ll advocate for. I’ve suggested similar before. If that’s not enough, raise the net worth tax to 2%. If that’s not enough… raise the net worth tax to 5% on estates over 2.5 million. If that’s not enough, lower the cutoff for the 5% net worth tax to .5 million. …
At some point it has to be enough, right? And when people whine, I’ll say, here, look at Sam Stone’s numbers! We had to double taxes &/or cut Medicare, otherwise the option was total default!
Are your numbers real or scare tactics?
Watergate? Glengarry Glen Ross?
Capital formation isn’t the problem. I am so sick of this economic-conservative (i.e., country-clubbers & their fellow travelers) trope that investment requires pre-existing large pools of capital.
More broadly distributed capital can still be invested. Raise after-tax income across the board by lowering the payroll & income taxes on the middle incomes & lower; if it comes to that, support consumption of their products with welfare spending; then those households have more opportunity to buy into the ownership society.
But there’s little use in letting someone with a thousand-Croesus trust fund keep more of his income. Tax half away, he’ll get it back in interest soon enough. Let him keep it & he drives the price of investment vehicles out of the range of the middle class. The ownership society thus tends to expand less or contract more without progressive taxes/redistribution.
And monies spent on consumption don’t disappear in a macroeconomic sense. They find their way to producers, & increase the profitability of labor along the way. Invested wealth is actually more likely to disappear. Feed the demand-side first & you’ll do more good.
Progressive taxation is not a liability to economic growth; it’s a boon. This has been demonstrated empirically.
Restoring tax levels to 2000 values will get you something like 2.7 trillion dollars over ten years - assuming the tax increases don’t hurt growth. Not very likely. But that’s if you cancel ALL the tax cuts, including those on the poor. If you just want to cut taxes on the rich, you’ll save maybe half a trillion dollars over ten years - but the deficit’s going up by something like 7 trillion over that time. So expiring the Bush tax cuts might cut the accumulated debt from 2010-2020 by 10% or so. Not nearly enough. Even if you let all the tax cuts expire (which would make next year the year of the biggest tax increase in history, I think), you’d still only cut the rate of debt growth in half. And then when the entitlement explosion hits, it would just be a drop in the bucket anyway.
There’s a troubling reality involved here. The average tax revenue amount from 1965 until the start of the recession was about 18.5% of GDP. When Bush cut taxes, that amount immediately fell to around 16%. But then it recovered and by 2007 tax revenue was almost back to where it had been before the cuts in terms of GDP, and about 400 billion dollars higher in absolute terms.
The only time taxes went above 20% of GDP since 1965 was during the economic boom in the 1990’s, when it reached a peak of 20.6% of GDP and even then it only sustained that for a short period. Before the Bush tax cut in 2001, tax revenues had already fallen back below 19.5% of GDP because of the incipient recession.
Before that, the only other time taxes were above 20% of GDP was in 1944 and 1945, when they hit just under 21% of GDP. You can see that data in this table.
This is really quite amazing, and suggests there are in fact strong feedback mechanisms in the American economy that work against tax changes. The amazing thing is that despite the huge variability in tax policy (top marginal rates as high as 70% and as low as 28%, big changes in estate taxes, excise taxes, capital gains and dividend taxes), the actual share of tax revenue as a percentage of GDP has stayed within a range of a couple of percentage points, and the maximum variance has been about six percentage points from the highest annual revenue to the lowest.
The current deficit is sitting at about 11% of GDP. To correct that with tax revenue would require taxes to go to about 26% of GDP - higher than it’s ever been in U.S. history by a very large margin.
Now, the ‘good’ news is that the deficit will probably drop down to a level of somewhere around 4-7% of GDP by the middle of the decade, Even then, restoring all the Bush tax cuts would only close the gap by 2-3 points, so you couldn’t do it completely, but you could get the deficit back down to historical levels of maybe 200-300 billion per year.
But unfortunately, very soon after that all hell breaks loose. Have a look at this Very Scary Chart.
According to that chart, entitlement spending and interest on the debt will consume the entire U.S. budget sometime between 2030 and 2040. That means you’ll be broke before you pay for one nickel of the actual operating budget of the U.S. government. By 2060, interest on the debt will be roughly as much as the entire U.S. government budget today. And then it really gets bad.
And here’s even worse news - that chart is from 2007, and doesn’t include the effects of the recession.
Here’s another chart, showing projected debt: Projected Public Debt. To get an idea of how bad the situation has gotten since 2007, notice how the chart shows the CBO projecting the debt to rise to about 100% of GDP by 2030?
Well, as of June of this year, it was already at 88%, and will probably crack the 100% mark next year, 20 years ahead of the schedule the CBO forecast just four years ago.
Here’s another gloomy story for you, if you really want to depress yourself.
Recent work by two Harvard economists have shown that countries which have their debt increase above 90% of GDP on average lose 1% of GDP growth. That suggests a long period of low GDP growth in the U.S. and other developed countries, meaning it’s going to be very hard to grow your way out of this crisis, and even harder to tax your way out of it. The economy is just too fragile to stand major tax increases.
Oh, it can be done. It will be painful. First, if you look at that forecast of entitlement spending, you can instantly see that there is simply no combination of tax cuts, spending cuts, tax increases, or spending increases that change that fundamental problem. Exponential growth can’t be fixed with linear increases in revenues. That’s the basic math. So all sides of the political aisle should agree that entitlement reform is absolutely essential - and I think we do, since the Democrat’s health care program was justified as an attempt at doing just that. We just disagree on the nature of the reforms. But it’s clear reform has to happen, and it has to happen soon. This gets much harder much quicker than we’d like if there’s a delay in implementing a fix.
Also, you can’t fix this problem by raising taxes on the rich. They don’t have that kind of money. Not even a tiny fraction of it. For example, that chart shows the debt increasing by over 20 trillion dollars between 2040 and 2050. The total net worth of the richest 400 Americans couldn’t pay for 10% of that. In fact, that ten year deficit alone would require something like half of the entire net worth of all the people in the United States to pay off, and within the next ten years the U.S. public would have zero net worth.
Of course that will never happen. But only because some other crisis will change the situation long before then. Probably by screwing over a whole lot of old and sick people.
If I were king, this is what I’d do:
-
Means-test Medicare and Social Security. This is probably the biggest-ticket item. In this kind of entitlement crisis, it’s crazy to collect tax money and give it to Bill Gates, Warren Buffet, and George Soros. Or for that matter, to give it to a retired professional couple with a nice private pension and a million or two in assets. They can take reverse mortgages against their homes if they need to.
-
Raise the retirement age via a sliding window - the younger you are, the later your retirement age will be. So people expecting to retire this year or next year still can. People expecting to retire in five years might have to wait six. For people who aren’t retiring for 25 years, they might have to wait 30. Then index the retirement age to the average life expectancy, so it goes up whenever the average life expectancy does.
-
Real health care reform that truly does lower the government’s costs - by putting the primary burden of health care back on the people, but with suitable changes to correct the failure of the insurance market. I would support universal catastrophic health care insurance, which would be significantly less costly to the government. Deductibles can be indexed by income level to shift more of the financial burden onto the rich if you need to. But the only way you’re really going to constrain the cost of health care is to make people pay for it out of their own pockets to some degree. 3rd party payment is an efficiency killer. That’s also why a true single-payer plan would probably be preferable to the one that was passed.
-
Regulation reform. Look at expensive regulation as a luxury. Cut costs of business and capital formation wherever you can without lowering taxes. That means local zoning laws, etc. States have to be part of the solution.
-
Freeze government salaries until salaries + benefits are back to the same level as equivalent private sector jobs. I’d go so far as to say that they should pay a little less, because part of the compensation is the increased job security.
-
Cut unnecessary government spending. I’d start by eliminating the Department of Education and the Department of Energy. Both are relatively new additions to the federal government that have utterly failed in their stated goals, yet consume huge amounts of money.
-
Get innovative. We have this cool thing called the internet. Let’s promote more distance learning, more teleconferencing, more innovative ways to leverage modern technology in education. Primary and Secondary education is very, very expensive, and the results of it in America have been declining for years. Why not try a major change? Take half the money saved by scrapping the DOEs, and set up a market in new education ventures, with vouchers being the currency. Subsidize home networking equipment if necessary. Force some parent contribution to keep costs down, indexed by income so as not to burden low-income parents. Parents who can afford it should be willing to pay a little more in exchange for education choice and higher quality schools.
-
Wind down the wars in Iraq and Afghanistan. Iraq is risky, because there’s a lot to lose. There’s an actual functioning country there now, and that gain can’t be squandered. So I’d withdraw very carefully and be prepared to halt the withdrawal if things start going to hell. With Afghanistan I’m becoming increasingly pessimistic. I don’t see a reasonable path to victory. So, unless Petraeus can make a convincing case that he has a path to victory, I’d write it off and get 3/4 of the soldiers out of there, leaving behind a garrison for stability and for hunting terrorists. Give up the nation building.
-
Pass a constitutional amendment that limits the government to a maximum size of 25% of GDP , and which requires the government to grow at a rate lower than the rate of GDP growth by at least 1% until that target is hit.
-
If the economy really starts heating up and looks like it’s heading for another boom cycle, raise taxes - but they must be directed only at the deficit.
There - my 10 point plan for fiscal sanity.
Why can’t they be both? 
http://finance.yahoo.com/tech-ticker/“enron-accounting”-has-bankrupted-america-u.s.-deficit-really-202-trillion-kotlikoff-says-535354.html;_ylt=AqwUVDOw_ae_1sAjPoXRURq7YWsA;_ylu=X3oDMTE2MDRmbzdqBHBvcwMxMQRzZWMDdG9wU3RvcmllcwRzbGsDZW5yb25hY2NvdW50?tickers=udn,tlt,tbt,uup,TIP,^gspc,GLD&sec=topStories&pos=9&asset=&ccode=
“Enron Accounting” Has Bankrupted America: U.S. Deficit Really $202 Trillion, Kotlikoff Says
Aug 23, 2010 07:30am EDT by Peter Gorenstein in Investing, Recession, Politics
The “real” deficit - including non-budgetary items like unfunded liabilities of Medicare, Medicaid, Social Security and the defense budget - is actually $202 trillion, the professor and author calculates; or 15 times the “official" numbers.
**Bloomberg Opinion
U.S. Is Bankrupt and We Don’t Even Know It: **Laurence Kotlikoff
By Laurence Kotlikoff - Aug 10, 2010 9:00 PM ET
*IMF has effectively pronounced the U.S. bankrupt. Section 6 of July 2010 “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” … “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”
The fiscal gap is the value today of the difference between projected spending (including servicing official debt) and projected revenue in all future years.
Double Our Taxes.To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. the IMF is saying that closing the U.S. fiscal gap requires an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.
‘Unofficial’ Liabilities.We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars.
*
I understand the concern of the debt and spending, but I don’t understand why the concern is NOW. Well, I do understand. It’s election year and debt is the tool republicans are using to wack democrats in the head. But realistically speaking, now isn’t the time to worry about it. We’re in middle of a recession. More Americans than ever need assistance, which the government can and should provide. Once the recession ends, THEN is when the debt should be seriously tackled. Until that point, debt is an unfortunate side effect of the simple fact government spending is needed right now.
Which isn’t to say there aren’t things we can’t do about the debt now, means testing social security or other similar measures which won’t directly impact the poor right now probably would be a good idea. It also doesn’t mean all government spending is good, a lot of stimulus package is very questionable and mostly likely just wasted money for example. However, at the moment, long term viability isn’t the primary concern of most Americans. I’d support a politician who said ‘Once the unemployment % is back down, we’ll need to do X, Y, and Z’, but the people who want to do X, Y, and Z this instant with 10% of the nation not even able to earn money are insane.
So you’re in favor of extending the Bush tax cuts, then?
You know that none of that money is trickling down right? The only thing people are investing in these days are T-Bills, so much so that they are at all time lows. I see no reason to continue the Bush tax cuts to the wealthiest 2% (or whatever). I would be for tax cuts to the middle class.
Because NOW is when we are having annual trillion dollar federal budget deficits every year.
Because NOW is also when we are also having another half trillion annual balance of trade deficits each year.
We must stop the deficits NOW, and we must also start to reduce the federal debt NOW.
Because the longer we wait, the worse, the more impossible, it will be.
We can’t wait. We are too close to the point of no-return.
It is so easy to soak the rich to lower the deficit because for most of it that solution demands nothing in the way of personal sacrifice and responsibility. It is really easy to propose a solution that comes out of the other guy’s pocket. As Sam has pointed out, those people just don’t have enough money to pay off the debt.
I am galled however, by the self righteous tone of middle class posters who are quite certain that lowering the deficit, and paying for everything, is someone else’s responsibility. Given the size of the problem there is no solution that doesn’t involve sacrifice from everyone save the very poor. Wanting more and more from your government and then wanting someone else to pay for it is not a particularly noble proposition, nor is it sustainable.
If you haven’t noticed, real property values have already gone down and property tax revenues along with it. A bunch of states are already in the red. If selling land worsens the problem, then obviously we should, nay, must do the opposite: force the government to buy more land!
(from me and my buddies, of course)
We should force the Government to…
to…
Wait! This is a Representational Democracy, right? We ARE the Government. The politicians do what we want or get voted out. We have exactly the low-lifes and scumbags we elected to public office. Why should it surprise anyone that we are in the mess we are? When we were running a surplus during the Clinton administration, there was very little talk in Washington about paying down the deficit, and a LOT of talk about “how are we going to spend all this new money?”
Why would it be any different now? Both major parties have been spending like drunken sailors the minute they got control of the Federal Tit.
Who are you talking about specifically because I am not seeing it.
I think everyone these days is against the deficit and the debt, have you watched the news lately? What most middle class posters are against are the Republican Party giving the rich a free ride. Voodoo economic indeed. Capital gains taxes for me are at 15%, and taxes for the top 1% of earners are near historic lows. Yet Republicans seem to want to increase spending while cutting taxes (not to mention starting a war with two different fronts) and calling the Democrats fiscally irresponsible. It seems to me that all the Republicans that call for more tax cuts are the ones that are “wanting more and more from their government and then wanting someone else to pay for it.” I think everyone here agrees that we should cut government spending and examine our tax structure with an eye to reducing the burden especially on the poor and middle class. I think everyone also agrees that taxes should not be too progressive and that everyone should pay their fair share. But taxes these days are pretty regressive, at least in MHO. And Sam, it does not matter that the top 1% of earners pay for 20% of government (or whatever the statistic you like to pull out says), if taxes are regressive, they are regressive. Paying 15% tax rate for long term capital gains is just ridiculous and there is zero evidence that increasing taxes on the wealthy will hurt capital investment. Give me a politician that is willing to raise taxes and cut benefits, and I would vote for them, and I think most people would.
I’m curious. Are the people calling for government surplus now actually trained in economics? Are you/they aware we’re passing through the biggest recession since the 1930’s and many experts expect this one to “double dip”?
Yes, I know you might be able to find PhD economists in Austria, or somewhere, advocating almost anything. I just wonder if the actual SDMB posters espousing deficit reduction today are economists.
Yeah, like either of those are new. Except for a brief blib at the end of the 90’s, we’ve been doing that for three decades now.
Actually, no we aren’t. America isn’t even close to that point. Let’s do some comparison here. Recently Greece’s economy blew up. Last year Greece’s budget deficit as a % of GDP was around 13.6 and it’s debt as a % of GDP was 115%. Today the United States budget deficit as a % of GDP is a little over 10% and our debt as a % of GDP is 94%. We’re a good 20% lower than greece, and our debt is growing at a lower % then they were. It’s take years of this before we even hit the level of being equal with parts of the EU. And keep in mind I’m comparing to Greece here. Their economic issues were actually relatively mild compared to some. Zimbabwe, for example, would be orgasmically happy if they could get to a Greece like economic situation. America has a long way to go before we hit the ‘point of no-return’. The doom and gloom talk makes for a great way to score some partisan political points, but it isn’t true. Not yet at least.
Stopping deficits and reducing debt will mean that we have to stop assistance for Americans. Social security, unemployment, job training, welfare, disability, whatever. There is no way to stop the deficits without drastic changes to reduce the cost of social safety nets. Politically speaking, raising taxes to the level needed to support them just ain’t gonna happen. Now I can deal with telling poor people to screw themselves, we can’t afford it. If it’s needed, and it is, well that’s just the way it is. But face reality, if we do that then these people will need to support themselves. Currently there just are not the jobs to do that. When even McDonalds isn’t hiring is not the time yank away the support system. I, for one, don’t want to see a return of hoovervilles.