I 100% agree in your scenario and I 100% agree that we are headed for a catastrophic failure because of the lack of fortitude to address the real issues. However, even I have a problem with comparing government debt with personal income.
I would have to add to the analogy that Uncle Sam is in bed with all the banks, creates and prints all the money, has all (or a lot) of the guns, and has naked pictures of all the people that have loaned him money. So, it doesn’t matter how much he spends as there is no one that can hold him accountable.
Somehow, despite the reality of the situation (at least from a personal perspective), it seems like Uncle Sam has 9 (or maybe unlimited) lives or at least has most of the world convinced that he does. Even those of us who don’t believe that there’s a real wizard behind the curtain can’t seem to find the lever to expose him.
I understand the political realities we face in Washington, but it seems to me the analogy completely glosses over the “income” side. Unless I’m mistaken, the top Federal tax rate right now is close to 38%. In 1960, that same rate was 90%. And some corporate giants (like B of A) pay no Federal income tax at all.
As an independent, I’d tell Uncle Sam to get a second job. Or in the real world, ask Congress to raise the tax rates for high income earners and corporations. I’m not saying we shouldn’t figure out a way to cut expenses, but it doesn’t make a whole lot of sense to ignore potential revenue sources. There’s no reason, other than lack of political will, that we can’t increase revenues at the same time we cut expenditures.
[quote=t.tanner]I understand the political realities we face in Washington, but it seems to me the analogy completely glosses over the “income” side. Unless I’m mistaken, the top Federal tax rate right now is close to 38%. In 1960, that same rate was 90%. And some corporate giants (like B of A) pay no Federal income tax at all.
As an independent, I’d tell Uncle Sam to get a second job. Or in the real world, ask Congress to raise the tax rates for high income earners and corporations. I’m not saying we shouldn’t figure out a way to cut expenses, but it doesn’t make a whole lot of sense to ignore potential revenue sources. There’s no reason, other than lack of political will, that we can’t increase revenues at the same time we cut expenditures.
[/quote]
T.Tanner
Please note that, though taxes were high back in the 1950s, etc. there are also many different kinds of trusts, vehicles, loopholes and deductions that are not available today. The effective tax rates on some of America’s riches families back then still ended up being ZERO.
I don’t think higher taxes - especially on the rich - will happen. Politicians campaign on tax cuts. Their political contributions come from high income donors.
Do you remember just a few months ago when the Republican minority in the Senate threatened to block ALL legislation - not just fiscal legislation - unless the expiring Bush Tax cuts were also extended to cover income beyond the first $250,000 per year? Among other things, those extra Bush-era tax cuts amounted to those in the highest tax brackets being able to keep an extra $46 for every $1,000 in earned income, an extra $20 for each $1,000 in capital gains. Expiring the tax cuts would have put taxpayers back to 2003 tax rates. They were willing to effectively shut down Congress for those making more than $250,000 per year.
So as you can see, taxes are decreasing at the federal level despite record deficits. The political support is just not there. And people at the bottom are barely scraping by. Remember, 100 million people (that’s roughly 1 in 3 Americans) live in households where income is $25,000 or less.
There may very well be some tax increases - especially on Social Security or Medicare - but that won’t be enough to offset a problem that is growing faster than tax revenues can increase. (Again, do you recall that for 2011, workers get to keep 2% more of their wages via reduction in Social Security contributions but the SSA will still act like they contributed 6.2% instead of 4.2%? Doesn’t sound fiscally responsible to me! )
So yes, the “Uncle Sam” analogy is about right. (And I’m glad I was able to help contribute to the ideas in the current edition.)
Poet
[quote=ttanner]I understand the political realities we face in Washington, but it seems to me the analogy completely glosses over the “income” side.[/quote]I do not believe you truly understand the realities since you seem to be clinging to the “tax the rich” or “tax the corporations” mantra: Total household wealth in the US: $54.2 Trillion Unfunded Liabilies (NPV):$113T
Notice that $113T is vastly larger than $54.2T, so exactly how can you tax or confiscate to even remotely cover a $113 trillion?You could take all assets from everyone in the US and not even be 1/2 way to covering just what is needed in the trust funds today to cover promised outlays.Even if you did confiscate from the rich, who would you sell the assets too? If you take the assets from the wealthy, their is no one left to buy those assets (since it’s not generally cash that you can redistribute - you would have to sell houses, stock, bonds, cars, household stuff) and as soon as you flood the market with those assets their value will drop.
Yes, it’s called not double taxing. A company can pass the profits through to it’s shareholders who then pay the tax. I don’t intend on addressing how high taxes should be, but if you tax it at the company then you have less to tax as income/capital gains for shareholders.
Also, it’s important to realize that once you start taxing at a high enough rate, eventually you loose the ability to tax. Say you are sitting around with $100K trying to figure out what to do with it, you can choose to invest in a company that might pay you 10% (if your lucky) for your investment, meaning you make $10K/year. However, after a 90% tax, you end up with $1K / year, or about 1% return. A lot of people would say, screw investing it, I’ll just buy a bigger house or a nice car instead. So now you have reduced the ability for a company to grow and potentially hire employees which reduces your potential tax base. IMNSHO - taxing income is stupid, you want to tax spending. You want to encourage investment and discourage consumption.
True, but the problem is the expenditures and promised expenditures are so large that they will never be paid. We will either default outright or via inflation.
Here are a couple of other interesting numbers I came across while working on this response that help put things into perspective: Total annual payroll in the US: $5.1 Trillion Market Cap of all US public companies: $15 Trillion
I do not believe you truly understand the realities since you seem to be clinging to the “tax the rich” or “tax the corporations” mantra: Total household wealth in the US: $54.2 Trillion Unfunded Liabilies (NPV):$113T
Notice that $113T is vastly larger than $54.2T, so exactly how can you tax or confiscate to even remotely cover a $113 trillion?You could take all assets from everyone in the US and not even be 1/2 way to covering just what is needed in the trust funds today to cover promised outlays.Even if you did confiscate from the rich, who would you sell the assets too? If you take the assets from the wealthy, their is no one left to buy those assets (since it’s not generally cash that you can redistribute - you would have to sell houses, stock, bonds, cars, household stuff) and as soon as you flood the market with those assets their value will drop.
Yes, it’s called not double taxing. A company can pass the profits through to it’s shareholders who then pay the tax. I don’t intend on addressing how high taxes should be, but if you tax it at the company then you have less to tax as income/capital gains for shareholders.
Also, it’s important to realize that once you start taxing at a high enough rate, eventually you loose the ability to tax. Say you are sitting around with $100K trying to figure out what to do with it, you can choose to invest in a company that might pay you 10% (if your lucky) for your investment, meaning you make $10K/year. However, after a 90% tax, you end up with $1K / year, or about 1% return. A lot of people would say, screw investing it, I’ll just buy a bigger house or a nice car instead. So now you have reduced the ability for a company to grow and potentially hire employees which reduces your potential tax base. IMNSHO - taxing income is stupid, you want to tax spending. You want to encourage investment and discourage consumption.
True, but the problem is the expenditures and promised expenditures are so large that they will never be paid. We will either default outright or via inflation.
Here are a couple of other interesting numbers I came across while working on this response that help put things into perspective: Total annual payroll in the US: $5.1 Trillion Market Cap of all US public companies: $15 Trillion
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rhare
I’m confused about $113T unfunded liabilities. If I understand correctly, the unfunded liability is the difference between the benefits that have been promised to current and future retirees and what will be collected in dedicated taxes and Medicare premiums. So the $113T are spread owed over many years. So leaving all other deficits aside, do you have an idea how much has to be saved every year to balance this $113T ?
[quote=SailAway]I’m confused about $113T unfunded liabilities. If I understand correctly, the unfunded liability is the difference between the benefits that have been promised to current and future retirees and what will be collected in dedicated taxes and Medicare premiums. So the $113T are spread owed over many years. So leaving all other deficits aside, do you have an idea how much has to be saved every year to balance this $113T[/quote]You are correct. The numbers are the NPV and assume some given rate of inflation over I believe 75 years. I haven’t been able to find what inflation numbers were used but the $113T was calculated by the Federal Reserve which I believe (as do many others) massively underestimates inflation. So, I recommend calculating at 0% (assume they have the inflation number right), and 3% and 5% just in case they are off a bit.
I have never done these calculations, so please if anyone sees anything wrong let me know. Of course all the numbers, including those from the Federal Reserve are pretty big WAGs. To do the calculations I used a mortgage calculator and simply scaled the values by a billion.
If you trust that theFederal Reserve, then 113T @ 75 years at 0% - no need for the mortgage calculator here - 113T / 75 = 1.506T / year. At 3% we would need 3.790 trillion/year, and at 5% it would be 5.787 trillion/year.
So best case to balance the budget at current spending rate, cover the entitlements and pay off the existing debt (@3%/30 years), we need (all numbers in trillions):
2.381 (current revenue) + 1.171 (deficit) + 0.712 (debt payment) + 1.506 (entitlements) = 5.77T in revenue, or 250% more than current revenue.
If the Federal Reserve is off by 5% on the interest rate they used, we would need:
2.381 (current revenue) + 1.171 (deficit) + 0.712 (debt payment) + 5.787 (entitlements) = 10.05T in revenue, or 422% more than current.
I don’t see us making any of these numbers work, raising taxes that much would crush the economy and make the problem even worse. That’s also a big assumption that we could finance the current debt at 3%.
Note: I would really love Chris to comment if this off the cuff calculation is close…
In his recent interview on this site, John Williams stated that if the federal governement used GAAP and taxed both individuals and corporations at 100%, we would still be running budget deficits. We can’t get there from here.Nate
Poet - I agree. There’s very little chance that we’ll choose to raise taxes on those most able to afford them. Which is too bad, as it’s typically better to climb down a cliff than to jump off and trust you’ll land on something soft.
To clarify my point, I’m not suggesting that we can solve our financial woes by increasing taxes. But any tactic that allows us to manage our descent deserves serious consideration. The fact that one of our major political parties has embraced the old “Know Nothing” banner from the 1840s is no reason to ignore one of the few cards we have left to play.
Which brings me to rhare. I appreciate your long and detailed comment - it was truly a thing of beauty - but I’m afraid you lost me toward the end when you wrote, “So now you have reduced the ability for a company to grow and potentially hire employees which reduces your potential tax base. IMNSHO - taxing income is stupid, you want to tax spending. You want to encourage investment and discourage consumption.”
Help me out here. I understand your desire to discourage consumption - it seems a pretty standard theme around these parts - but why are you so worried about propping up growth? Aren’t the two ideas, if not mutually exclusive, at least on opposite sides of the aisle? And isn’t the concept of limitless expansion in a finite physical space one of the key problems we’re facing?
[quote=ttanner]Help me out here. I understand your desire to discourage consumption - it seems a pretty standard theme around these parts - but why are you so worried about propping up growth? Aren’t the two ideas, if not mutually exclusive, at least on opposite sides of the aisle? And isn’t the concept of limitless expansion in a finite physical space one of the key problems we’re facing?[/quote]Just because we are faced with limited growth or even reductions doesn’t mean you don’t need capital to build/create things that are needed for the future. It’s not necessarily propping up growth, but rather allowing capital to flow to those areas where it’s most needed. I believe the free market and highly distributed systems generally lead to the better solutions than any centrally planned method - this is because distributed systems tend to try many more things and the viable solutions survive the rigors of competition. In a centrally planned solution generally fewer options are tried and your relying on luck of the planner to pick a correct solution.
Now you may not agree with my private versus government choice, but I ask you, isn’t nearly all government spending consumptive (healthcare, welfare, war, entitlements)? Do you see that changing anytime soon given the size of the budget for entitlements and defense spending?
As far as why tax spending, it’s because we are faced with limits and we need resources to be directed where they will do the most good, and that is capital investment over consumption.
Do you honestly see any difference between the two parties? They are both for large government, out of control spending, and the status quo. This can easily be seen by the example of the cuts proposed by the Republicans and the Democrats - both show absolutly no acknowledgement of the serverity of the situation. Neither party has shown even the slightest awareness of the energy crisis we face. The Republicans stick with the old we have as much oil as we need in the US and we just need to drill, while the Democrats push alternative energy with little understanding of the severity of the energy crisis we face (ie - solar/wind won’t fix it). Neither side appears to have even a basic comprehension of the magnitude of the energy problem.
I’m wondering if the numbers in your story include revenue from the Social Security and Medicare taxes as well as social securtiy and medicare payments.
[quote=steveyoung]I’m wondering if the numbers in your story include revenue from the Social Security and Medicare taxes as well as social securtiy and medicare payments.[/quote]Based on the descriptions at Wikipedia (where the budget data was pulled) and the numbers from usdebtclock.org. I would have to say yes it does include both the revenue and payouts. This year I believe they are pretty close to equal to slightly more spending (a few 10s of billions) than revenue.
Well,
I like percentages. I understand them better. I know anything more than 100% means a deficit. I can spend 100% of my Maypo. I cannot spend 110% of it. I can’t spend 10% more than I have… Oh, wait, yes I can… I have that cool little credit card in my pocket!! Then, I can pay the 10% back so that the amount I “borrowed” equals 300% of what the original amount was that I used to buy those cool new fake spinner hub caps for my Yugo!!!
When we are confronted with logic like this that has been perpetuated for over a generation, it is no wonder our “leaders” are clueless.
Anyone remember the real estate investing books from the '80’s that said to use credit cards to buy foreclosures, fix them up and flip them before the payments came due on the cards? Those are the folks who are now in charge.
C.
BTW, both political parties in this country are two sides of the same rotten sandwich.
Well, maybe the politicians won’t raise taxes on the rich voluntarily, but if the 98% of not-filthy-rich NFR get it figured out correctly, then perhaps they will let their policitican’s know that either they raise taxes on the rich or the NFR are going to revolt. Really, if 98% of a population gets together to overturn 2%, then they are going to have their way. A war with such odds would only take a few weeks to conclude. Don’t forget, people are broke now, but they still consider themselves middle class. They have two cars, 4 TV’s, a few computers, ipods, etc. Wait until it sinks in that they are poor. the US is a like a chicken with it’s head cut off at the point where the head has been cut, but it is still running around not knowing it is dead yet. People (not this group) don’t face reality until they have to and even then they will hold out. The really interesting question is why do so many of the NFRs want to cut services to the poor, rather than tax the rich. I think it’s because they want to be like the rich themselves, and hold out the hope they will be, and they revile the poor. We are unfortunately at a stage of human development where we blame people for their circumstances and figure they must have done something to deserve it, just as some idiot pundits recently claimed that the Japan disasters were retribution from God. This plays very nicely into the hands of the oligarchs, who after all, “deserve” their just rewards because they are all so superior.
It occurs to me that when the system collapses, the first will be last and the last will be first, because those countries living close to the land will be able to survive, while our highly interdependent society will not function. In China, 20 minutes from the skyscrapers, it is agrarian. What is the backk up system in the US? You know what they say, the higher you climb, the further you have to fall.
[quote=Carodox]It occurs to me that when the system collapses, the first will be last and the last will be first, because those countries living close to the land will be able to survive, while our highly interdependent society will not function. In China, 20 minutes from the skyscrapers, it is agrarian. What is the backk up system in the US? You know what they say, the higher you climb, the further you have to fall.
[/quote]
Carodox
While it is entirely possible that, when the system collapses, the first will be last and the last will be first… During the long declining road towards that collapse, the first will continue to be first, and the lower-middle and the last will suffer even more.
Look at fuel prices and food prices, for example. The poor of Egypt spend 50% of their money on food, and it’s already subsidized. Rising food and fuel prices hurt them hard. Here in the U.S., our poor also spend a lot on food, but that’s also mitigated by food stamps. But the more money you make, the less you spend on food and fuel.
In a decline-to-collapse situation, things get worse faster for the lower-middle to last - amongst countries and within countries. But the first will remain first, and the ones with wealth will always manage.
In some of the prime areas of Madagascar, for example, Saudi Arabia, China, and Korea have locked in contracts to control and farm hundreds of square miles of land. They know what’s up.
As oil prices increase, wealthy countries will continue to be able to purchase fuel from the countries producing it, while poor countries without oil to export will experience real problems, and the poor within the countries exporting oil will find themselves priced out of the oil market.
As there’s less funding sent to Third World countries for basics like food aid, vaccinations, medical care, their lifespan will get brutishly short - especially with HIV/AIDS stalking the land…
Poet
[quote=Carodox]The really interesting question is why do so many of the NFRs want to cut services to the poor, rather than tax the rich.[/quote]You missed the point. Taxing the 2% and where do you end up? Exactly the same place. The reason for the article and subsequent posts was to hopefully get more people to stop blathering on about taxing the rich and wake up to the fact that we have so far over promised on services that there are not even remotely close to enough rich to tax.
As for why the NFR don’t want to see the taxes on the rich is because all the tax proposals that have come out from the left clearly are aimed at those in the upper 50% that actually pay any taxes, not the upper 2%. Who cares if some billionaire gets a bit more favorable taxation if it means the people who make the 100-250K and have small businesses don’t get crushed in the rush to tax.
Although it should be noted that the deficit was actually higher in the years before 2008 as well, with the costs of the wars hidden off the budget until Obama brought them back onto the budget… And obviously the deficit is actually MUCH higher if you recall that the government spends any extra Social Security money it receives and doesn’t consider that deficit spending.
But in terms of the proposed cuts… Face it. Neither the Republicans nor the Democrats in Congress are serious. They’re both delusional.
[quote=Poet]In some of the prime areas of Madagascar, for example, Saudi Arabia, China, and Korea have locked in contracts to control and farm hundreds of square miles of land. They know what’s up.
[/quote]
I know that Saudi Arabia is ‘buying’ large contracts for riceland right here in Thailand. It is already bordering illegal business because no foreign entity can own land. Fake Thai companies with paid nominees are setup especially to circumvent this law. But when SHTF those contracts will be voided. At that moment it will be each country for its own. And if you not have enough amounts of food production demestically and don’t have a large enough army to go fight for it, well bad luck and see your people die by the hundreds of thousands.
It is one of the reasons i moved to Thailand, because here food is falling from the trees.
[quote=Brainless][quote=Poet]
In some of the prime areas of Madagascar, for example, Saudi Arabia, China, and Korea have locked in contracts to control and farm hundreds of square miles of land. They know what’s up.
[/quote]
I know that Saudi Arabia is ‘buying’ large contracts for riceland right here in Thailand. It is already bordering illegal business because no foreign entity can own land. Fake Thai companies with paid nominees are setup especially to circumvent this law. But when SHTF those contracts will be voided. At that moment it will be each country for its own. And if you not have enough amounts of food production demestically and don’t have a large enough army to go fight for it, well bad luck and see your people die by the hundreds of thousands.
It is one of the reasons i moved to Thailand, because here food is falling from the trees.
[/quote]
Brainless
I would say that, if Thailand remains a food-exporting nation that is more than capable of feeding its people, then the Saudis have little to fear, because there will be enough for all. So long as the people are fine, the Saudi lands in Thailand will be fine.
In areas where the people are suffering and there is a shortage of food, then either they will take over like the Blacks attacking White farmers in Zimbabewe, or the Saudis will increasingly have to bribe an increasingly corrupt and brutal government to keep the people down.
Poet