After thinking about what you said, I have to revise my overall viewpoint.From a budgetary perspective, based on the numbers I see, moving things into balance is eminently doable in the relatively near term, if we can move beyond the talking points of both sides of the the puppet show participants.
But if we look further out to what the future entitlement promises really mean, rather than focusing on the numbers themselves, the picture isn't quite so nice, and it all has to do with energy. Entitlements and even the concept of retirement requires society to have a large enough surplus to support a bunch of people who aren't currently working for one reason or another. And that societal surplus requires energy.
Let's say in today's society, we have enough surplus production to allow half the population to simply not work. One half supports the other - and the accounting of who gets what slice of surplus is handled through entitlement programs, social security, medicare, medicaid, as well as pension plans, IRAs, savings accounts, etc. This accounting is society's way of dividing up the available treasure amongst the people - but the actual amount of treasure to divide up remains the same, regardless of the accounting system we've selected.
Projecting forward, let's imagine that the society's energy budget dwindles to where our surplus production only allows 1/4 of the population to simply not work. In some sense, regardless of how "the accounting bit" gets handled, a huge chunk of formerly not-working people will end up having their supply of gravy defaulted upon, simply because of a lack of resources to back it up.
This huge chunk might well include a big group of people who were promised a pension and now don't get it, or people who had saved properly for retirement, or people who are genuinely disabled, and so on. However with the overall surplus of society reduced by lower energy (or Peak Everything), the default must occur. Somehow.
To my mind, we can either engage in a process of deliberate, conscious default as time passes, trying to "balance the budget" the whole way down, or we can take the approach that since "everyone deserves everything they were promised" (or conversely, "cutting defense can't possibly close the gap" and/or "the rich don't have enough money") we decide that we cannot default on anything and/or make any sacrifice whatsoever, and so we run our society 100 mph into a brick wall.
And that brings us back to Chris and his desire for an adult-style conversation about the future.
I completely agree with your post davefairtex. We either make some hard choices now while we can, or we hit the brick wall going 100 mph. Unless human nature has suddenly changed, I guess we're going to have the 100 mph crash because that's what most of "we the people" insist upon. However, I've seen police and firefighters having adult-style conversations at the scene of major fires, riots and active shooter incidents, shouting over the background noise, trying to bring order to chaos. That usually works out pretty well considering the hand they're dealt, aside from the unavoidable death, injury and destruction. But that's because of training and experience leading to the best outcomes in very bad situations. When a whole society hits the wall, there's no one there to have those urgent, shouted "adult-style conversations" who has any experience or much training in handling such a thing. That's where the panic sets in and a perfectly civilized and rational country can CHOOSE to install a Hitler to lead them. Yikes! Brace for impact.
[quote=darbikrash]Extracting some top level numbers to make my point, from pages 5-8:
- Total Assets claimed for tax purposes by US Corporations…………~$80 trillion.
- Total Income (receipts) for US Corporations in 2010…………………. $26.2 trillion
I have some more numbers, but I want to stop here because when I first found these documents a few years ago, I was rather shocked to find this number for aggregate annual revenue. This folks, is a very big number, especially when you consider US GDP is ~ $15 trillion. The total is nearly double GDP. This should stop and give pause to those that would make the case that there simply isn’t enough money in the economy. The problem is that such pundits are not looking in the right place.
[/quote]
You cannot compare the $26 trillion in corporate revenues with the $16 trillion in GDP. It's mixing up stocks and flows. The GDP is supposed to measure how much our economy produces. It fails at that because it measures non-production such as the 'value' of free checking and the 'value' of not having to pay yourself rent if you own your own home, but that's a different story for a different day.
To illustrate, suppose we have a simple economy where somebody grows (produces) a really nice standing rib roast. Person A wants it and they pay $100 for it. So far our economy has a GDP of $100 and revenues of $100. But then person B wants it and buys it for $110. And then person C buys it for $120. And then person D for $130.
Now our economy still has a GDP of $100 but has revenues of ($100 + $110 + $120 + $130) = $460.
I hope that made sense.
Because of this idea that one company's products are another company's input costs it does not make sense to compare total revenues to taxes. Taxes are paid on net income, not revenues, for hopefully obvious reasons.
So, let’s find out how much tax US corporations paid on the aforementioned $26.2 trillion in 2010? (...) Let’s do some arithmetic! $26.2 trillion in gross income, $223 billion of tax actually paid, let’s see, that’s less than 1% tax paid against gross receipts (.0085%)I totally agree that corporate taxation is far too low, and especially I deplore the lower rate of taxation on passive income (div/inc) over active income (working for a salary). Seems to me that's exactly backwards. But I will vigorously debate that taxation should be based on revenues instead of net income. If it were, that would destroy the entire practice of investing (which is deducted from income, usually on a depreciation schedule) which is the basis for improving a business. [/quote]
Hi Chris- thanks for your comments. I totally agree that GDP is a poor metric, at least for measuring the subject matter discussed here, and I am making the point that total (corporate) revenue is a better measure of precisely what is going on.
It is not that I am interested in comparing GDP and total corporate revenues, they are clearly not comparable, but the illustration does serve to highlight how much money there is in the “pot” that our economy actually generates, in cash. And based on this cash, how much (corporate) tax is really being paid.
I am not suggesting that taxation should be determined solely by revenues, nor by the same token am I suggesting that corporations direct 7 months of their gross revenues to pay off the national debt. These examples are not meant in a literal sense- but they do serve to scale the problem. In particular, I think the very notion that our entire national debt can be paid (not that it ever would) with just 7 months of earnings from the aggregate of US corporations is simply shocking.
The ratio I presented of taxes paid (1.1%) against a total “pie” of over $20 trillion in annual gross receipts is meant to give pause to the conventional thinking that further taxation is futile and that America is “tapped out” from a perspective of taxation. Taxation on individuals- yes absolutely tapped out. Taxation on corporate income- by far the larger income stream- not even close. By comparison, IRS documents for 2010 CY show individual tax returns- (the other bucket of income class) with AGI of ~ $8.1 trillion paying a total of almost $1 trillion in income tax for a nominal (Federal) tax ratio of 12.1%.
I think this is rather a substantive point.
I might also argue that most Americans are in fact taxed solely on revenue, according to the Brookings Institute, 2/3 of all Americans do not file itemized deductions for Federal tax returns, which means they essentially pay tax directly on their wage income. “Inputs” for gasoline for example, necessary to get to work, are not tax deductible for individuals, regardless of whether a long or short form is filed.
I do not suggest that (corporate) taxation should be based on receipts, but I do use this ratio of 1.1% to suggest that the total reported net profits – at least of the 2,772 corporate returns that comprise the 51% of total receipts and 81% of the total assets, is grossly - and I mean grossly to the point of abject fraud- under reported.
Another subject entirely is the billions of corporate revenue that are not reported at all, by the use of offshore shell companies and other avoidance strategies. These income numbers do not show up at all on the IRS documents.
I cannot really see having a dialogue about not being able to afford Social Security and other public social safety net programs until this is rectified in some meaningful fashion. Cries that we can’t afford such programs, coupled with tabulations for future expenditures that purport to show looming bankruptcy are just not credible when the largest revenue stream is clearly getting away with murder from a taxation standpoint.
This is a great thread! So many good comments. Thankyou, one and all.
Because of human nature being what it is, we're not going to be able to avoid hitting the wall. Politicians who advocate austerity won't get elected. People will only vote for austerity if that alternative appears to be the least painful right now. As long as there is a glimmer of hope, people will choose that path instead. It doesn't matter that the glimmering light at the end of the tunnel is from a train coming at us at breakneck speed. By the time we collectively recognize our plight, it will be too late.
Promises were made when the future seemed limitless. The future doesn't seem as limitless now. When I was young, I balked at paying social security "taxes," but I assumed that others would pay for me when I needed it. As a result, I didn't fight it too hard.
"Where ignorance is bliss, 'tis folly to be wise."If this truly is a predicament (as Chris defines the word,) there are no solutions - only outcomes. We should move beyond the "tax the rich ... and everything will be okay" argument. At best, that will only kick the can down the road a bit more. It solves nothing. We may as well just tilt at windmills (or borrow money and pay others to tilt at windmills for us.)
The system is unsustainable. Collapse is inevitable. If the system collapses soon enough (and hard enough,) there may be the opportunity to rebuild society. What parts of the current system should be kept? What parts should be scrapped?
Insurance is only as sound as the insurer. Should the government get involved in the insurance business? I've "paid into" the social security system for 42 years. (I started young.) I still have more than a few years before I'm eligible to "withdraw entitlements." I don't expect to get anything out of it. Is it fair to the bag holders who didn't have the opportunity to vote for this law?
It isn't just generational fairness that needs to be preserved. Was it right for the founding fathers to grant majority status to land-owning males only? Would you feel the same way if your gender and racial circumstances were different? It is important to have fairness and equal economic opportunity.
Government needs taxes to exist. The higher taxes are, the more incentive there is to get around them. If taxes are low enough, it isn't worth getting around them. If we deem income taxes to be the most efficient way to collect taxes, then consider all income to be equal. It doesn't matter if it comes from wages, capital gains, or government entitlements. Consider it all as income. Exclude a set amount and then have a fixed percentage tax on any income above that level. Do away with all deductions. Is it fair for a renter to subsidize my mortgage costs?
…
In Chris' example, I'd say the GDP is $130 rather than $100. The producer produced $100, while "A", "B", and "C" each contributed $10 to GDP. The producer also had a cost basis in this simplistic example. In darbikrash's defense, wage earners trade portions of their life in exchange of wages. They have many other expenses that are ignored by the tax code. Couldn't we all argue that our costs equal our wages? Income is taxed because it is easy to quantify. Government needs to get income from somewhere. The bigger it is, the more income it needs. What is the solution?
Grover
There's a basic theme propounded by Chris and others writing similar blogs: Greer, Orlov, Kunstler, McPherson, Foss, Heinberg, C.H. Smith, Berman, et al. Which is . . . in short form . . . that the entire structure of the global financial/corporate/government system has grossly bloated up beyond resemblance to any historical precedent, and its foundation is in the process of significant deterioration before our very eyes.
One can argue the merits of various scenarios in how this all plays out – hyperinflation/hyperdeflation and fast collapse of the global financial structure, a slow, grinding decent of catabolic collapse, global climate change with catastrophic results in 10-100 years, major depletion of energy resources resulting in a massive decline of industrial civilization, and other options too numerous to mention here – either separately or in combination.
The salient point however is that, whatever scenario(s) you personally subscribe to, the denouement is coming, and it will not be pretty. Take your pick on the degree of horrors that will obtain.
However, that being said, in my mind, the $64,000 question always revolves around the famous phrase: “Timing is everything.”
If, for instance, you are currently implementing a plan of personal preparation – by paying down all debt, gradually reducing your resource consumption, moving from your current suburban house into a more sustainable homestead, implementing/improving/expanding your gardens and livestock, building up your skills education in many aspects of self-reliance, etc., etc. You have embarked on a project that will certainly take several years to complete.
However, if August, 2014 brings not only the 100-year-anniversary of WWI, but also a massive crash of the world financial system, followed by a systemic breakdown of the global just-in-time distribution/transportation structure . . . well, you just may find yourself not-quite-ready for prime time. A much earlier start, or a significant acceleration of your plan, would have put you in a much better position.
If, on the other hand, you are implementing the same plan and there is no sharp collapse along the way . . . just a gradual, steady, and significant erosion over time . . . you may well be privileged in later life to watch your grandchildren harvesting walnuts from the trees you planted 50 years previously, on your now mature permaculture homestead.
Two different scenarios, with big differences between them. And obviously there are many, many other scenarios that can be imagined, with equally different results – based on timing.
That’s the problem with “knowing” how this is all progressing. You may “know” that it’s going to all turn out pretty awful. But unless you have a really solid “feel” for the RATE at which it is progressing, your plans may either be a matter of “too little, too late”, or “weren’t we lucky we started seriously preparing when we did.”
Timing IS everything.
Well, we could start by taxing the HFT trades. If the HFT traders threaten to leave the country, GOOD!
Let them go somewhere else to front run trades. We would be better off without them since they provide zero benefits toward the common good and make a mockery of the market is a price setting mechanism.
We could close the loopholes corporations use to avoid paying taxes. GE is a good example. They paid zero corporate tax in 2012. So fix the tax code.
Strip away the huge farm subsidies that go to wealthy farmers. Stephen Fincher, a wealthy TN Congressman has received over 1.3 million is subsidies.
Stop these insane wars and for God's sake quit making weapons for the armed forces that they don't even want. This is costing billions.
I have just skimmed the surface. We need to re-order our priorities.
There's a basic theme propounded by Chris and others writing similar blogs: Greer, Orlov, Kunstler, McPherson, Foss, Heinberg, C.H. Smith, Berman, et al. Which is . . . in short form . . . that the entire structure of the global financial/corporate/government system has grossly bloated up beyond resemblance to any historical precedent, and its foundation is in the process of significant deterioration before our very eyes.
One can argue the merits of various scenarios in how this all plays out – hyperinflation/hyperdeflation and fast collapse of the global financial structure, a slow, grinding decent of catabolic collapse, global climate change with catastrophic results in 10-100 years, major depletion of energy resources resulting in a massive decline of industrial civilization, and other options too numerous to mention here – either separately or in combination.
The salient point however is that, whatever scenario(s) you personally subscribe to, the denouement is coming, and it will not be pretty. Take your pick on the degree of horrors that will obtain.
However, that being said, in my mind, the $64,000 question always revolves around the famous phrase: “Timing is everything.”
If, for instance, you are currently implementing a plan of personal preparation – by paying down all debt, gradually reducing your resource consumption, moving from your current suburban house into a more sustainable homestead, implementing/improving/expanding your gardens and livestock, building up your skills education in many aspects of self-reliance, etc., etc. You have embarked on a project that will certainly take several years to complete.
However, if August, 2014 brings not only the 100-year-anniversary of WWI, but also a massive crash of the world financial system, followed by a systemic breakdown of the global just-in-time distribution/transportation structure . . . well, you just may find yourself not-quite-ready for prime time. A much earlier start, or a significant acceleration of your plan, would have put you in a much better position.
If, on the other hand, you are implementing the same plan and there is no sharp collapse along the way . . . just a gradual, steady, and significant erosion over time . . . you may well be privileged in later life to watch your grandchildren harvesting walnuts from the trees you planted 50 years previously, on your now mature permaculture homestead.
Two different scenarios, with big differences between them. And obviously there are many, many other scenarios that can be imagined, with equally different results – based on timing.
That’s the problem with “knowing” how this is all progressing. You may “know” that it’s going to all turn out pretty awful. But unless you have a really solid “feel” for the RATE at which it is progressing, your plans may either be a matter of “too little, too late”, or “weren’t we lucky we started seriously preparing when we did.”
Timing IS everything.
Growing up I always thought you worked till you were 65 and just collected SSI, life is a dream? This was never well explained. About 10 years ago I learned you cannot live on SSI. ( I did not know that). So about 10 years ago I started a 401 K. That got destroyed, However I'm still putting in. It did well the last few years. Why can't you use a trailing stop on a 401 K? I might need that money one day. The whole thing is stacked against you. Every time I have a few bucks in there I would like, at the very least the option to buy an anunity. I'm 58 so don't have a lot of time to make up what I will need.
I believe the solution would be to slowly, like over 30 years raise the age to 85, so people would at least know they got to plan for retirement. I would in the short term cut all the payments by 1/2 the rate of inflation till that time. Old people spend less money.
Another important thing I did not know before is that, You get your SSI statement and it says you get X amount of money, then your wife gets one that says she gets X amount of money. It never tells you about the marriage penalty. When you both collect they don't pay what they said they would, I don't know how much less, but it is less.
I think it's perfectly clear to most people where the money SHOULD come from. Little doubt it won't though. Sadly, I'm a cynic too.
I disagree with the assertion that “tax the rich” won’t work, purportedly because the system is so far gone that even 100% taxes wouldn’t balance the budget. The problem with this argument is that while we all agree that dollars have now completely divorced themselves from any relevance to the “real world”, well you know what… I can’t help but notice that dollars can sure still buy lots of “real things”…
So while the ultra-wealthy accumulate more and more (worthless, "illusory", we’re being told…) dollars by gaming the system, and while we’re being told by the anti-tax crowd that it’s pointless to tax the rich now because the system is mathematically beyond saving (so gosh darnit we might as well just let them keep their illusory dollars), those same ultra-wealthy are busily, happily, and actively converting those "worthless" dollars into tangible things (and saying, “thank you very much for your support, rhare!”); tangible things that the average person can’t own because he's just scraping by – things like farmland, shares in any remaining “productive” industry, etc.
I have asked this before, but who owns America’s farmland? Monsanto and other behemoths like it? Who owns Monsanto? Average people? Or instead, a few extremely wealthy elites that aren’t even listed in that table presented by KennethPollinger? The ones in that table are merely the celebrity elites, the Donald Trumps of the financial world. The really wealthy people … we don't even know about.
This is the same process that’s happened all throughout history: wealth accumulates in the hands of a few, and the masses become serfs who own nothing. There are only three ways out of this: 1) violent bloody revolution in which those privately owned assets are seized and redistributed, which leads to the ugliness of communism, 2) by growing the economy so the impoverished middle class can increase its wealth without impoverishing the elites (that’s what’s happened over the last couple hundred years), or 3) institute a wealth tax, which as far as I know has never happened because the wealthy overlords own the political system in that scenario and would never institute a wealth tax against themselves, so that brings us back to Scenario #1.
The only kind of taxation system that will work in an economy that can no longer grow is a wealth tax. Income taxes will not work, because the “the flow” (income) is dropping in relation to “the stock” (wealth). Of course, “tax the rich” won’t save the current system because the current system is fundamentally flawed. No one could legitimately refute that. But a wealth tax would help to enable the 99% to actually outright own something tangible so that when the reset comes and a new monetary system is put in place they aren’t brought into that system as serfs with a net worth of zero (since I presume that mortgage debt will simply be repriced, so they won't even enjoy the benefit that hyperinflation might bring of actually owning their homes via debt devaluation).
We do not have a “very bad spending problem”. Government spending has gone down by about 30% over the last 30 years, and on a per capita basis, even further. Spending money to keep people eating and alive who have no jobs because they got displaced by a robot is not "living beyond our means". We are nowhere near the point yet where resources are so scarce that people need to be starving. If people are starving then the problem is due to unfair wealth distribution. If the monetary system is purportedly falling apart because of the spending to keep people alive (which it isn't), then the problem is with the monetary and taxation systems themselves; not the spending.
Do I expect to work less and live roughly the same standard of living that people did 40 years ago did? Until fossil fuel production dramatically declines (and it hasn't yet), then YES, you're damn right I do! That’s what technology is supposed to do! Make our lives easier. If there’s a robot doing something that a person used to do, then the economy can “produce” just as much “goods and services” afterwards as before robots took over, except it should now offer more free time to its workers while still maintaining their previous take-home pay. If the worker who gets displaced by a robot ends up impoverished because of it, it’s NOT because the system's dying because that worker’s now sucking from the teet of society; it’s NOT because the “wealth” of society has decreased in terms of how many “goods and services” are produced (because it hasn't); it’s because the wealth isn’t being distributed fairly! Because the wealthy aren’t paying their fair share; it's that simple.
In reviewing my post, I realize that this comment may be interpreted wrongly by readers. I'm not suggesting that it's acceptable or sustainable for people to live the standard of living we have enjoyed over the last 40 years. I was instead making a comparison between two hypothetical economies. One, with no robots, and thus "production" is done by hand, which provides jobs for people. As a result it has full employment. The other economy has lost half its workforce due to robots, but the robots plus the remaining labour are still capable of producing the same amounts of total goods and services (assuming demand remains the same) that the first economy produces. There is no reason why both economies cannot have the same average standard of living for the average person. Economy #2 is our current economy, and the reason people are suffering today is because of the way the monetary and taxation systems are structured. What we need to be doing is two-fold: 1) reduce the work week which spreads out the remaining jobs to provide full employment. This in itself would just result in more impoverishment for the workers, so along with this we need to 2) institute a wealth tax, which will keep the wealth within the working class. Then the government won't be burdened with any more welfare programs than it was with economy #1.