posted
Apologies in advance if this is too political a link. However, I thought this article was a cool, reasoned analysis of the U.S. deficit and its implications, and possible ways of managing it. I thought it was remarkably nonpolitical for such a hot wire issue.
In a nutshell: Broad spending cuts, broad tax increses, and economic growth will all be needed to bring the U.S. national debt under control. Any one alone won't do it, and not doing it would be a catastrophic decision.
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However, tax increases reduce tax revenues because they dampen the economy. On the other hand, tax reductions increase tax revenues because they spur the economy.
Although there is a point below which tax revenues fall when you lower taxes, we are presently far above that point.
Over the past few years, there were tax cuts, and increased tax revenues as a result, but they were offset by increased spending, which is bad for the deficit.
Soon, those tax cuts from years ago will end, and so therefore tax revenues will plummet. Spending has increased even more recently than it increased in past years, so now we're looking at a big problem.
[ March 24, 2010, 02:51 PM: Message edited by: Randy ]
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quote: However, tax increases reduce tax revenues because they dampen the economy. On the other hand, tax reductions increase tax revenues because they spur the economy.
Although there is a point below which tax revenues fall when you lower taxes, we are presently far above that point.
It's virtually a mathematical theorem that there must come a point where increasing the tax rate decreases revenue. Just where we currently are in relation to that point is difficult to assess, particularly as the point is a moving target: Whether we have a strong or a weak economy and what the regulatory environment and tax base are like affects it, and those things are changing all the time.
I don't know what the current views are on this. I feel the evidence is strong that we were past this point when Reagan began his tax cuts, and the tax cuts did increase revenues; but that claim has been contested by others.
If, in fact, we are already maxed out on taxes (meaning no increase of any tax can increase net overall revenues) then there is no alternative to cutting spending and hoping for growth. The article outlines why it will be difficult to cover the deficit with these alone.
I am not myself optimistic about the situation. Entitlements have proven to be very nearly a one-way ratchet, where once granted, they can never be taken away. Since entitlements account for a very large and growing fraction federal spending, the outlook isn't good.
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quote: A few years ago, Peter Lindert — an economist at the University of California, Davis — looked across countries and across time in an effort to answer the question, "Is the welfare state a free lunch?" He found that countries with high levels of government spending did not perform any worse, economically speaking, than countries with low levels of government spending. The result was surprising, given the usual intuition that a larger government would levy higher taxes and engage in more income redistribution — both of which would undermine economic growth.
Lindert found that the reason for this apparent paradox is that countries with large welfare states try to minimize the extent to which government actions undermine the economy. Thus, high-budget nations tend to adopt more efficient tax systems — with flatter rates and greater reliance on consumption taxes — than do countries with lower budgets. High-budget countries also adopt more efficient benefits systems — taking care, for example, to minimize the degree to which subsidy programs discourage beneficiaries from working.
very interesting, the author goes on to comment on Sweden which has universal healthcare and welfare yet managed to turn its deficit around. Very interesting.
Yet as an outsider it has been a view of the world that the military takes a huge hit of your budget, I realise you have ever right to defend and deter but perhaps wind down research or cost cut there? Remember I am an outsider.
Often shouted is to reduce politicians wages, this I find hard as they need to be very professional and experienced (sadly this is anything but the case). Demanding that they have some sort of degree can make the situation worse as then you are limiting access.
Also the welfare state allows for a cut in crime in many instances, spending across the board (not just in high middle income and high income). It also encourgaes growth and fair wages especially for big business, no longer can they then afford to keep employees below the poverty line when they can easily and with Gov. assistance move on and find a better job, get better trainning etc.
The key I think in reducing deficit is to look within at the people and start using them not abusing them. a better workforce can offer better oppertunities to increase in size and gives employers and potential employers confidence in the market. By enabling the unemployed or poorly trained acces to assistance and trainning it encourages people. With this you should see growth, and if handled well and not taxed severly it will reduce deficit.
quote: Yet as an outsider it has been a view of the world that the military takes a huge hit of your budget, I realise you have ever right to defend and deter but perhaps wind down research or cost cut there? Remember I am an outsider.
Not only are we paying to provide our citizens with the protection afforded by a sizable military, we are paying for many other countries to have the protection afforded by our sizable military. Much of the national defense of Germany and Japan, for example, is provided by the United States, which asks relatively little in return. This frees up a significant chunk of their national wealth for their welfare states.
I am not sure I would want it any other way. With the decline of Britain as the international superpower, the baton was passed to the United States (around 1943) and the Pax Britannica became the Pax Americana. I find this vastly preferable to the likely character of a Pax Germanica, Nazi-style (sorry, I realize we're not yet to page three but the mention of Nazis is actually in context here) or a Pax Russica. However, this benefit, like all benefits, also carries a cost.
I do not know the detailed breakdown of the defense budget. Research is doubtless a significant component, but I doubt it is the major component. Since threats tend to evolve, and the world seems in some respects more dangerous than ever, I doubt we would want to risk major cuts.
quote: Often shouted is to reduce politicians wages, this I find hard as they need to be very professional and experienced (sadly this is anything but the case). Demanding that they have some sort of degree can make the situation worse as then you are limiting access.
I suspect many Americans would be surprised to learn that the President makes just $400,000 per annum. This compares with about $650,000 per annum for the average CEO. It is also about a quarter of what the President was paid, in inflation-adjusted dollars, in 1900. Of course, the President also enjoys unmatched perquisites. I would still favor increasing the salary by a large factor. Out of a Federal budget of three and a half trillion dollars a year, this is chicken feed.
Likewise Congressional salaries.
Bureaucrats are not that well paid either. I suggest reading James Q. Wilson's excellent Bureaucracy for a discussion of some of these issues.
quote: Also the welfare state allows for a cut in crime in many instances, spending across the board (not just in high middle income and high income).
This has not been the experience in the United States. Welfare assistance, particularly to unmarried women with children, has likely contributed to the breakdown of the family in the inner cities, and the violent crime rate among "sons of welfare" is extraordinarily high.
You could respond that we're just not doing welfare right, and I would agree. I think the Church does a much better job. The Church, however, is confronted with very different constraints and incentives than the government, and I am skeptical that the Church model can be adopted successfully by the government.
quote: It also encourgaes growth and fair wages especially for big business, no longer can they then afford to keep employees below the poverty line when they can easily and with Gov. assistance move on and find a better job, get better trainning etc.
A lot depends on how you define a fair wage. I would define a fair wage as a wage equal to the value the employee adds to the business, plus a reasonable cut for the employer (who, if he receives no such cut, has no incentive to hire anyone.) I believe the cut for the employer can be morally justified by the fact that the employer provides a work environment that the worker could not create on his own, usually at the risk of his own capital.
If the employer tries to take an unreasonable cut, he will lose his employees to a more reasonable employer. That other employer need not be the government.
quote: The key I think in reducing deficit is to look within at the people and start using them not abusing them. a better workforce can offer better oppertunities to increase in size and gives employers and potential employers confidence in the market. By enabling the unemployed or poorly trained acces to assistance and trainning it encourages people. With this you should see growth, and if handled well and not taxed severly it will reduce deficit
You are arguing for economic growth as a way to decrease deficits. So does the author of the article. One way to achieve economic growth is to increase the productivity of workers; this can be done through increased capitalization (giving the workers better tools) and by job training (increasing the worker skills.) The former is an argument for increased savings; the latter is an argument for an improved educational system. That would be a 50+ page discussion thread in itself.
The two are not mutually exclusive, except to the extent that money spent on education is money not spent on capitalization. You have to strike the right balance. With a massive deficit, there is less money for either -- part of the point of the article.
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Whatever our policy preferences, can we please agree that persons of good will can and have disagreed on the best balance between individual freedom and the common good? Both are Gospel principles. Striking the proper balance between them is hard. Very smart and reasonably decent people have been arguing over that balance for a very long time.
It's not that I don't have any strong policy preferences of my own. I'd as soon keep them to myself in a forum like this until it's clear people will not conflate the wisdom of my policy preferences with my worthiness to hold a temple recommend.
posted
Part of the problem with society is that it is changing and what is required to maintain a livelihood in our society is also changing.
Some things really are more expensive and might better be served as a government service, if they're deemed essential to maintaining one's freedoms in that society.
There are so many variables. One is the basis upon which we build our freedom. Is our freedom based upon having a certain level of affluence, or guns, or the ability to access information, or keep that information private? All of these basic needs translate into complicated problems and consequences that in turn we take a weak-minded mortal attempt to solve through the application of laws, social norms, cultural factors, religion, politics, and so forth. (more variables and sources for disagreement).
Hence the real trouble... all these variables.
And you know... honestly this is why I don't bother with it. I do like the idea of keeping the equation simple. I do see a deficit as a negative most of the time, though clearly not always, as is the case with my mortgage. I suppose if I only bought housing I could afford, I'd be living in a tent, but then that would directly affect my livelihood in other aspects, wouldn't it?
In a way our country likewise spends more than it makes, in the hopes that it's housepayment will always be manageable... and that the direction we're going will make us profitable enough to pay down all that eventually.
I suppose, One must then ask the question whether we really think that our country's ability to generate wealth will be able to keep up with its appetite for spending.
I think our country could maintain a healthy deficit, if we had a purpose for doing so that was admirable and showed potential for growth.
(Though currently I don't know that I see that... perhaps if we invest in underdeveloped countries in a way that they pay us back... perhaps... seems unlikely though, the way the world bank works...)
And thus we see... political issues are complicated messes... and we already all knew that.
posted
One thing that has concerned me since I was around 14 (sometime in the early Holocene period) is how growth can be maintained given that natural resources are finite and limited. I don't have an answer, but I certainly hope that someone somewhere in a position of influence does.
Maybe the point that the resources of the Earth run out is the point that the curtain comes down, the Earth receives its paradisiacal glory and everything changes?
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quote: In response to Josh's previous post: I don't think the question is "can" our government provide all those services, I think the question is "should" our government provide all those services.
My honest beleif is that sure there are a lot of things John Q Citizen can do, however there are situations that they are poorly equipped for, and in all likelyhood could end up damaged and distressed from their service. For example I have little knowledge of correct ways to deal with drug habbits (having had no exposure to drugs at all), also I have little to no knowledge with situations to deal with mental health. These are but the tip of the iceberg that the hot meal scenario will sink like the titanic against.
Deficit is more or less always going to hurt countries that buy and not produce. America and rapidly Australia is becoming a consumer nation of little technical skill we can make wonderful computer programs and design fantastic buildings but lack the skills to make the computer or the building materials and workforce(so to speak).
posted
It's easy to assume that when we are more loving, we are more likely to help out. My experience is that it can work the other way as well -- when we choose to help out, we tend to become more loving. You can talk to any number of youth participating in a Church service project who acknowledge that they felt pretty good afterwards, however reluctant they were at first.
Is this an argument for forced charity? Do people become more charitable when they are compelled to pay taxes to help others? I'm actually kind of skeptical of that. There is some sociological data showing that, when government assistance decreases, voluntary charitable contributions increase, not the other way around. There are some challenges in knowing how correctly to interpret that, of course. For one thing, when there are more voluntary charitable contributions, there's less need for government programs.
I will confess to being skeptical that government is an effective institution for instilling civic virtue. Government works better when there is civic virtue, of course, but I believe it has to be instilled by other institutions. The experiments I've seen in government trying to instil civic virtue on its own have not turned out happily. Think Nuremberg rallies.
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Note that the defense budget is now less than 20% of federal spending, in spite of the expenses of two police actions in southwest Asia.
The breakdown is not entirely clean, but almost 20% is Social Security (currently the largest single item), 16% is unemployment, welfare and "other mandatory items" (interesting language, but I assume that means similar social safety net spending), 13% is Medicaire, and 8% is Medicaid and related programs. That's 54% of the budget for entitlements. Most of this -- 33% of the total budget -- is for non-means-tested entitlements (Social Security and Medicaire) for the elderly. Most of this money is not going to poor people, though there are certainly some desperately poor people in the group that receives it.
Interest on the national debt is about equal to the entire combined budgets of the three largest departments after Defense -- Health and Human Services, Transportation, and Veterans Affairs.
The corresponding chart for revenue is here. Note that Social Security and payroll taxes are roughly equal to income tax, and both overwhelm all other revenues in importance. Customs and excise taxes, which were once the most important Federal tax base, are a very small percentage now.
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quote: I will confess to being skeptical that government is an effective institution for instilling civic virtue. Government works better when there is civic virtue, of course, but I believe it has to be instilled by other institutions. The experiments I've seen in government trying to instil civic virtue on its own have not turned out happily. Think Nuremberg rallies.
Honestly it is not a matter of civic virtue. We allow the government to deal with criminals through the police, the dangerous house and industrial fires with a fire brigade, the sick and injured through doctors. I just fail to understand that, mentaly afflicted, drug and alcohol addicted should only be assisted through comunity volunteer schemes. It would be like asking for people walking by to help put out a chemical fire or take down some drug dealers. Sure the comunity can assist, but it needs direction and specific training.
Welfare is simmilar certain individuals, sometimes through fault of their own, or no fault of their own find themselves in difficult situations. For example last year at a church function I broke my back in two places and crushed my vertebrae, previous to that I had herniated myself at work and my employer failed to assist me. Thankfully we have welfare so my 5 children cold eat while their father recuperated. Then I have several operations only to be told I have bloodclots and need extensie therapy and specialist medical assistance.
I shudder sometimes and wonder what would happen to me without the assistance my government gives me and my family. Certainly it could be said that it is my own fault I did not save or have income insurance, I find remarks like that all too judgemental. Dying in a ditch is not something I have wanted to do with my life and it is due to welfare that I am here today.
Although I look and wonder why no mean testing??? I mean you give help to those that need it not those that could afford it anyway. In Australia once you earn a certain amount of money per year you are on your own with medical aid. Thats amazing welfare without means testing, why wnyone would be a fool not to sign up for it! (aside from the fact its a little dishonest.) There may be a silver bullet after all, bring in the means testing and set a limit for welfare recipients.
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posted
I think I need to give some historical/geographical background to Josh's comments. For all my life as an adult I have had a steady stream of the most faithful, delightful and marvelous American missionaries criticize Australian society as being "Socialist". In a phrase,it isn't. Belligerently egalitarian, yes. Socialist, no. But why does it look, feel and smell socialist?
1. The original colonies were established by the British gov't. We don't have any hangups about the government giving us handouts even if it means higher taxes.
2. No water. Water is important. English explorers went walking into the interior with dreams of finding mighty north American type rivers. They found some rocks. Water supports population. Population provides markets. Without much of either we have to turn to the gov't to provide just about all of our infrastructure.
3. Egalitarianism. No one will ever make much of a profit providing services to the remote areas. (the 'Bush') Yet, we cannot abide the thought of some kids in the bush going without many of the opportunities the city kids have. So, once again we turn to the govt to foot the bill.
4. Women. Right from the start of Federation women have had the right to vote from day one. They were a powerful lobby group in the formative years of the Commonwealth. This is why we don't support conscription, and why we have a multitude of benefits aimed specifically at children and young families.
5. More egalitarianism. The founders of this great nation were the dregs and scum of British society. Others who came later were refugees from the ugly, Social Darwinist, super competitive capitalism of the 19th century mines and mills of Britain. We don't care much for individualistic competition. We expect our leaders to drink beer, play cricket, and get caught out in New York strip clubs.
So, without rabbiting on for too long, I hope you take this little essay in the spirit it is intended. Honestly and truly, it appalls us when the leaders of the Church, quite rightly, denounce the evils of socialism, but the members of the Church, quite wrongly, place things like universal health care ,benefits for students, sick and unemployed in the same basket.
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posted
Some interesting stuff here and in that article. One thing that people of other nations don't realize is that a large part of our economy is based upon keeping up the strength of our military. On the other hand, some nations depend upon the U.S. military might for their defense and thus can spend a smaller portion of their GDP on defense, freeing up other monies for social programs.
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quote: some nations depend upon the U.S. military might for their defense and thus can spend a smaller portion of their GDP on defense, freeing up other monies for social programs.
In actual fact Australia is in a international treaty with Canada and New Zealand for mutual defence (so no more war of 1812s or us Aussies will be fighting in the lake states!lol). The other point I make here is that many countries are helping America in its international military adventures, though this in all senses of the word is for the greater good. I would like to know the countries that America offers military protection to that account for its almost 1914esq european style military build up / deterent?
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posted
Socialism is defined as an economic system in which the government owns the means of production. That still leaves a lot of ambiguity. Is it socialism if the government only owns some of the means of production? That's usually described as a mixed economy. Is it socialism if the government merely has effective control through regulation, not formal ownership, of the means of production? You might call that a regulatory state, though regulation is essential to a free market economy also. (Indeed, a free market economy cannot exist without the right regulation.)
Three years ago, it could be said with some confidence that the U.S. economy was not yet a mixed economy, though some sectors were tightly regulated by the government. We were in no meaningful sense socialist.
The U.S. government now owns controlling shares of our largest bank and our largest automobile manufacturer. We have clearly made the transition to a mixed economy. It should not surprise anyone that this transition upsets some people; it's an important milestone.
The government need not own means of production or even tightly regulate any important sectors of the economy to be a welfare state. All that is needed is a high level of taxation to support the structure of benefits. We have never been a full welfare state, like Sweden, but we've had a partial welfare state since Social Security was enacted. The recent health bill brought the entire health industry under tight regulation, which edges us further into being both a welfare state and a regulatory state.
I can understand why folks from other countries who have grown up knowing they have guaranteed health benefits from the government might wonder how it could be any other way and what our fuss is about. I sometimes get the impression that folks from other countries think that someone showing up at a U.S. emergency room with a severed artery will be left to bleed to death in the gutter if he doesn't have private insurance. Do I really need to tell you that this isn't the case?
That is, in fact, part of the problem. If you go into an American emergency room in an inner city, you will find plenty of genuine emergencies, but you will also find folks with the flu who really don't need to be there but who know they cannot be turned away and cannot be required to pay for their examination. Part of the rationale offered for the recent health care bill was that these folks were already subsidized, so why not formalize the practice? Whether that rationale stands up to scrutiny is another matter that continues to be hotly debated.
My impression is that the Church leaders who condemned socialism seemed to consider it synonymous with the welfare state. The Church has historically not been fond of government welfare. Given how it has sometimes been run here -- aid to women and children being dependent on there being no man in the house, for example -- I think there are good reasons for this.
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quote: I would like to know the countries that America offers military protection to that account for its almost 1914esq european style military build up / deterent?
I don't know about that 1914esq stuff, but many of the NATO countries are a good start.
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posted
I don't know about the buildup either. Military spending has increased since 2001, but not that dramatically given that the U.S. is now involved in two police actions in southwest Asia ( link). It has actually decreased as a percentage of total federal spending over most of the last sixty years, with the last ten years being a rather small bump on this trend ( link).
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posted
Yes, but...everyone knows if any of them are attacked it will be the U.S. to the rescue. They know it, and we know it. Since that is the case, most of them don't bother putting a lot of money into defense.
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quote:everyone knows if any of them are attacked it will be the U.S. to the rescue.
unless its the US doing the attacking - I think you will find the member nations of NATO to disagree with your approach as the American government seeks their support in Afghanistan and Iraq. Frankly the idea that we take money and spend it on the poor not on defence because America will come to our rescue is rather hilarious.
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quote: very interesting, the author goes on to comment on Sweden which has universal healthcare and welfare yet managed to turn its deficit around. Very interesting.
Do they have much of a problem with illegal immigration? We have up to 25 million illegals who live in the US who take jobs but don't pay any income taxes. They also take a lot of jobs that should go to American citizens, so we have the cost of unemployment.
In Sweden do all the people pay income tax? In the US a majority of the legal citizens don't pay any income tax but get money back from the government.
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posted
I don't think Australia does that Josh. But I definitely believe some European countries do. The U.S. as a military superpower is the biggest deterrent for countries with expansionist tendencies to keep from acting out those tendencies.
posted
Susan, how do illegal aliens get out of paying income tax? They have wages withheld like everyone else, and they don't get refunds because they don't file tax returns. They also have wages withheld for social security that they will never receive.
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posted
Yes, anyone legal or illegal can avoid paying taxes by getting paid under the table. And the employers that do this kind of thing are also avoiding paying taxes. But to make a blanket statement that illegals don't pay taxes is incorrect. Since they don't get refunds, they probably pay more than legals with the same income.
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posted
I believe it’s really missing the point when citizens get so upset about the illegal working man-woman and don’t see the law-breaking citizen employer as the main problem.
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quote:In the US a majority of the legal citizens don't pay any income tax but get money back from the government.
A majority of citizens may get a partial refund, but it's not true that they don't pay any income tax. Or maybe I'm just doing something wrong, but it's been several decades since I got back everything I paid.
quote: Get ready for some major upheaval in the next two months. soon.
Are you ready?, spiritually and TEMPORALLY.
nuff said.
There have been several such claims on this forum over the last couple of years. None of them turned out to be true.
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quote:Judging by the crowded waiting room at Esteban Ramirez’s modest tax preparation office in Richmond, where a television blared Spanish-language soap operas, it’s clear undocumented immigrants are growing increasingly comfortable around a Form 1040.
Some are interested in getting refunds, like the approximately 80 percent of tax filers who get them each year. Although ITIN users don’t qualify for the Earned Income Tax Credit, which could give a break to an American earning in the same bracket, they can get other tax credits, and can use ITINs to claim dependents in Mexico.
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Others who came later were refugees from the ugly, Social Darwinist, super competitive capitalism of the 19th century mines and mills of Britain. We don't care much for individualistic competition. We expect our leaders to drink beer, play cricket, and get caught out in New York strip clubs.
