AEI's Arthur Brooks on the Debt Ceiling in the WSJ
"Budget reformers need to remember three things. First, this is not a political fight between Republicans and Democrats; it is a fight against 50-year trends toward statism. Second, it is a moral fight, not an economic one. Third, this is not a fight that anyone can win in the 15 months from now to the presidential election. It will take hard work for at least a decade.
Consider a few facts. The Bureau of Economic Analysis tells us that total government spending at all levels has risen to 37% of gross domestic product today from 27% in 1960—and is set to reach 50% by 2038. The Tax Foundation reports that between 1986 and 2008, the share of federal income taxes paid by the top 5% of earners has risen to 59% from 43% (see chart above). Between 1986 and 2009, the percentage of Americans who pay zero or negative federal income taxes has increased to 51% from 18.5% (see chart above). And all this is accompanied by an increase in our national debt to 100% of GDP today from 42% in 1980.
Where will it all lead? Some despairing souls have concluded there are really only two scenarios. In one, we finally hit a tipping point where so few people actually pay for their share of the growing government that a majority become completely invested in the social welfare state, which stabilizes at some very high level of taxation and government social spending. (Think Sweden.)
In the other scenario, our welfare state slowly collapses under its weight, and we get some kind of permanent austerity after the rest of the world finally comprehends the depth of our national spending disorder and stops lending us money at low interest rates. (Think Greece.)
In other words: Heads, the statists win; tails, we all lose.
Anyone who seeks to provide serious national political leadership today—those elected in 2010 or who seek national office in 2012—owe Americans a plan to escape having to make this choice. We need tectonic changes, not minor fiddling.
Rep. Paul Ryan's (R., Wis.) budget plan is the kind of model necessary. But structural change will only succeed if it's accompanied by a moral argument—an unabashed cultural defense of the free enterprise system that helps Americans remember why they love their country and its exceptional culture.
Where will it all lead? Some despairing souls have concluded there are really only two scenarios. In one, we finally hit a tipping point where so few people actually pay for their share of the growing government that a majority become completely invested in the social welfare state, which stabilizes at some very high level of taxation and government social spending. (Think Sweden.)
In the other scenario, our welfare state slowly collapses under its weight, and we get some kind of permanent austerity after the rest of the world finally comprehends the depth of our national spending disorder and stops lending us money at low interest rates. (Think Greece.)
In other words: Heads, the statists win; tails, we all lose.
Anyone who seeks to provide serious national political leadership today—those elected in 2010 or who seek national office in 2012—owe Americans a plan to escape having to make this choice. We need tectonic changes, not minor fiddling.
Rep. Paul Ryan's (R., Wis.) budget plan is the kind of model necessary. But structural change will only succeed if it's accompanied by a moral argument—an unabashed cultural defense of the free enterprise system that helps Americans remember why they love their country and its exceptional culture.
31 Comments:
The share of income taxes for the wealthy is going up. But the share of income for the wealthy is also going up. The top 1% make about 23% of all the income. In 1980 they made 10%.
Also note that this is referring to income taxes, not all federal taxes. Income taxes are progressive, but other taxes are regressive, like Social Security. Taxes on capital gains are kind of mixed. When all are factored in, not just income, our tax code looks a lot less progressive. It is mildly progressive.
But not at the state level. There it is regressive.
Once again, you have to take into account payroll taxes, that is Social Security and Medicare payroll taxes, that fall only on the first $100k in income.
The federal tax burden has a different picture when you take into account these payroll taxes.
BTW, if you want to just concentrate on federal income taxes, then be aware that Defense, Homeland Security, VA, USDA, Interior and debt eat up 70 percent of federal income taxes.
Here is employment by federal agency. If you want to give the richest Americans an income tax cut, then please say which of these agencies you want to cut, and by how much.
Department of Defense 3,000,000
Veterans Affairs 275,000
Homeland Security 250,000
Treasury 115,000
Justice 112,000
Energy 109,000
USDA 109,000
Interior 71,000
Labor 17,000
HUD 10,000
Education 4,487
“In the other scenario, our welfare state slowly collapses under its weight, and we get some kind of permanent austerity after the rest of the world finally comprehends the depth of our national spending disorder and stops lending us money at low interest rates”.
This is what I think will happen. But more importantly, I think it’ll happen even if we significantly increase the tax burden on U.S. residents. Which is why I think we should leave the tax burden where it is (or even reducing it). The collapse is going to come one way or another. It might as well come with the tax burden remaining as it is. That way, when Greek-style austerity finally comes to America, at least some of us will have some money socked away somewhere.
Benjamin,
“If you want to give the richest Americans an income tax cut, then please say which of these agencies you want to cut, and by how much”
^^^^^^^^^^^^^
There is a VAST difference between income tax RATES, and tax revenues actually collected by the IRS. If we raise the top marginal rate, we may collect a little more, but the “fat cats” will expend great effort to avoid those taxes. In particular, small business owners will be less inclined to re-invest capital in their businesses, and more rich people will set up shell corporations in foreign countries; they will also make “campaign contributions” to those politicians who are willing to introduce more tax loopholes.
The way I figure it, if we raise the top marginal rate by several percentage points, we might see total IRS revenues go up by $50B or so (per year). But that’s about it.
As to where we should cut… Everything. Discretionary, defense and entitlements. I have my own personal preferences, but we could do worse than cutting across-the-board.
As has been noted many times before, payroll taxes go to the person's own retirement income, so it doesn't make sense to count it when we're talking about govt spending. Of course, the govt skims the surplus payroll tax revenue every year and spends it on other govt activity, but that's only because the entire SS system is one big scam. I don't see anything happening about the debt till all the mainstream news outlets go bust, which thankfully will be soon. I normally only read the WSJ, but I happened to check out some other outlets like nytimes.com and cnn.com today (only because I was testing out a new web browser), and they all treat the budget battle as though the Republicans are being completely stubborn and unreasonable. The leftie slant is blatant, hell, even O'Reilly says the Tea Party is being unreasonable by demanding no new tax revenue.
Right, because it's "unreasonable" to demand that the govt stop borrowing $1.5 trillion every year in our name, all so politicians can buy off more voters with new entitlements or pork projects, not to mention idiotic Keynesian fantasies. As long as most people are apathetic and just listen to what the mainstream media tells them, reason will always lose in politics, so I don't see any serious effort to handle the debt succeeding for another 5-10 years, until after CNN, NYT, WSJ, Fox News, and every other broadcast media outfit is dead and gone. The bloggers like Mark or Arthur are starting to spread the light, but I fear it's just too soon to reach most people right now.
Too many voters are satisfied with a hand out and too many politicians are more than happy to accept for votes instead of doing whats right for the country.
What would happen if you allowed a dual (or more) currency system whereby the current tax regime stays in place for the dollar (with only minor tinkering taking place) whilst the only tax for the new currency (gold?) is an income tax charged at a sufficiently high rate that only those in, say, the top 10% of income bracket would benefit from shifting from the dollar to gold.
Over time, decrease the income tax rate on gold so that more and more people benefit from shifting from the dollar (and its related tax system) to gold.
Eventually the current economic system (with dollars, complicated tax system, social security etc) will collapse, but when that happens there will already be a fully functioning alternative system.
jon-
actually, you are wrong in your analysis. the share of taxes paid by the top 10% has been going up faster than their income.
even if you include fica, the us has the most progressive federal tax system in the free world.
http://mjperry.blogspot.com/2011/03/us-has-most-progressive-tax-system-for.html
i'm not so sure you are right about state and local taxes either.
it depends a bit on the state.
i used to live in California and paid 11% income tax at the state level (CA is progressive)
the rich also pay far more in property tax AND are much more likely to own a home. they also pay more in sales tax. people talk about sales tax like it's regressive, but it's not really. you spend more, you pay more. it's flat, not regressive. auto registration is actually progressive. it drops off rapidly with older cars and high end cars pay "luxury tax".
so are taxes in a state like utah, where everyone pays 5% of income.
so how can you argue that state taxes are regressive? at worst, they are flat and many are progressive.
i don't think you have a leg to stand on with that claim. state taxes are progressive, not regressive.
you're just so used to the rich getting soaked that "we all pay the same rate" strikes you are regressive instead of flat.
the only really regressive tax in the US is fica, because it only applies to your first $107k in income, but that still makes it effectively flat for 84% of americans. but that's supposed to be your own savings anyway...
bunny-
actually, i'd be OK with just setting a flat tax and getting rid of the 51% of americans who pay no net federal income tax.
that number has doubled in the last decade.
you want to see where budget deficits come from, that's where.
you want to see where the politics of oevrspending come from, that's where. once 51% of americans pay no tax, you have an automatic majority for every new spending program that know someone else is paying.
you are also misframing the issue preposterously. the problem is mostly in entitlements. that's where the huge unfunded liabilities are.
i've already shown you how to balance the budget about a million times, but you and your etch a sketch seem unable to remember it, so here we go again:
halve military spending.
move the SS retirement age to 75 and means test it. that will cut SS by 2/3.
turn medicare/aid into block grants set up like an HSA. cut spending in half.
bang, you're balanced.
then there are a ton of subsidies etc to cut (xm bank, farm subsidies, mortgage interest tax deduction, etc)
now you are running a surplus. this will cut debt service costs and let us drop tax rates over the coming decades as growth increases and debt declines.
there's nothing difficult about it, we just lack political will because we have a majority on the gravy train and they always vote against anyone threatening to take their free stuff away.
if the US were a private company, a CEO could turn it around in a couple of years.
70% of the money that is owed, is owed to ourselves, one way or another. 30% of it is in our own private retirement funds.
If we tax ourselves to pay the debts, we are out the money.
If we don't tax ourselves, and we default, we are still out the money.
If we cut a third out of government spending, we are out about 10% of the economy, and a substantial number of jobs, and other benefits. The theory is that private eneterprise will more than cover this loss, eventually. In the meantime, we are still out the money.
Heads we lose, tails we lose. If the coin defies all logic and lands on its edge, it eventually falls one way or the other.
No one comes out ahead on this, neither statists nor free market theorists. Economic decisions were made long ago, by both parties, and we will now pay the price.
The game now is to see if one side can fix the blame on the other. At this point it no longer matters what one believes, benefit cuts and cost increases will affect everyone.
.....and getting rid of the 51% of americans who pay no net federal income tax.
============================
Well, at least you are honest about it. Get rid of thse people and most of our problems go away.
Some of those people pay no income tax because they have no income. A flat tax of 25% of zero is still zero,
As a group they earns something like 4% of total income earned. Tax tham at a flat rate of 25% and they pay a whopping 1% of taxes.
Granted we cannot solve this on the backs of the rich, but we surely can't expect the poor to contribute much, and that means we cannot solve it on their backs either.
Better to just get rid of them.
if the US were a private company, a CEO could turn it around in a couple of years.
=============================
Sure. Break it up in pieces and sell off the component parts, lay off 30% of the workers. foreign countries would be standing in line to bid on the pieces.
The CEO would get a whopping bonus, and retire to the south of France. Socialist Frane.
....move the SS retirement age to 75 and means test it.
=========================
Good idea.
But isn't means testing for social security after having paid into the system for decades tantamount to a new (although retroactive) tax on the rich?
....the share of taxes paid by the top 10% has been going up faster than their income.
================================
Sounds fair to me.
The share of income earned by the bottom 10% has been going down faster than their taxes paid.
Federal taxes don't mean squat. Total taxes are the issue, and local taxes are partially driven by Federal largess and by Federal fiats.
Morganvich, I didn't actually say the share of income for the rich is going up faster than their taxes. Could be, but I'm not sure.
Here's a source on state taxes. One state (Vermont) has a system where the poorest don't pay a higher proportion than the rich. In the rest they do.
The data I have don't confirm the claim that our tax system is the most progressive. Data from the CBO shows that in 2006 the top 10% paid 55.4% of all the taxes. Emmanuel Saez has the data on the proportion of income they have. Here's a link to the spread sheet directly. Figure 1 shows that the top 10% had about 50% of all income in 2006 and it fell back to 48% in 2007. I think it's come back since then. By that the US ratio in 2006 was 1.11, not 1.35 indicated by Perry.
Sorry, meant to include the CBO data, which is here.
jon-
that article on state tax is using some pretty odd definitions.
if we all pay 5% sales tax, that is a flat tax, not a regressive one. if i save a greater proportion of my income than you do, the tax would be more of your income as a % than mine, even if we had the exact same income. thus, it would seem more "regressive" to you than to me despite our perfect income parity.
that's why the definition they use is such nonsense.
we all pay the same is not regressive, it's flat.
to claim that my higher savings rate is the same as a regressive tax seems absurd to me.
regarding your tax assumptions, that CBO report validates the data i gave you.
go to page 4.
share of taxes for top 10%:
55.4%
% of income:
31.9%
55.4/31.9 = 1.447, and even more progressive ratio than the one i cited.
i don't know if you read it incorrectly or what, but it actually proves my point more emphatically that the data i used.
no idea what saez is on about, but given that he is an extreme left wing zealot who fails to footnote, i think we need to go with the CBO on this. not sure why you chose to use another source.
using their data, mark was understating the case.
Arbitrage-
I could go for a flat tax, or preferably a progressive consumption tax (interestingly, Milton Friedman preferred a progressive consumption tax to finance military build-ups).
I would like to eliminate the corporate income tax and replace it with a gasoline tax.
But see, my ideas are actually from classic economics, not from the badly adrift modern-day modern wing. Or the carnival barkers on the radio.
The argument for freedom is a moral and cultural one, not an Austrian one, or even for that matter, to be derived by economics.
Dierdre McCloskey is heroically showing the way here.
We argue that we would choose free markets even if they can not be shown to be more efficient. After all, on paper the PC is still more economically inefficient than a centrally controlled mainframe surrounded by dumb terminals. We already know how that worked out for IBM, DEC, Wang and the rest.
Morganvich, a sales tax is regressive because the poor spend all of their income and the rich are able to save. So suppose I make $10K/yr. I spend every penny. So if sales tax is 5% I pay in total 5% of my income to sales tax.
But a rich guy makes $1 million/yr but only spends half and saves the rest. He pays 5% on the $500K he spends, or 2.5% on his total income.
jon-
it is your definition of "regressive" that i am disputing.
if we all pay 8% sales tax, it's flat, not regressive. in fact, it may even be progressive.
we all face the same incentives on all marginal purchases.
if you and i both make 100k and you spend 90 and save 10, and i spend 60 and save 40, you'll pay 50% more sales tax than i will.
so is it regressive for you relative to me? we have precisely the same income.
you are confusing a regressive tax (like fica) with savings rate.
this is a popular populist practice (the media does it all the time) but this is being done to make us think flat is regressive and progressive is not progressive enough.
even this is still a highly slanted way to look at taxes.
if there is a "flat" income tax of 25% and you make 100k and i make 200k, you pay 25 and i pay 50.
we consume the same government. we get the same roads, courts, airports and cops, but i pay twice as much.
is that really flat?
if you went to buy a burger, we'd expect to pay the same price. by the logic you were using before, that would be regressive as it would be twice the % of your income as mine. but in reality, it's flat.
a "flat" tax is not flat. i earn more and pay more for the same goods. it's the equivalent of making me pay twice as much for a burger as you do because i earn more money.
in this same way, sales taxes may actually be progressive. you may pay more as a %, but i pay more in dollars.
i'm not getting any more for it. the same government and infrastructure that you buy costs me more in actual dollars. that is progressive, not regressive.
I will link to this from my Old Jarhead blog. I fear the situation is so dire that no one can politically do the very painful things needed, and the future will be even more desperate. We may not have a decade.
Robert A. Hall
Author: The Coming Collapse of the American Republic
(All royalties go to a charity to help wounded veterans)
I will link to this from my Old Jarhead blog. I fear the situation is so dire that no one can politically do the very painful things needed, and the future will be even more desperate. We may not have a decade.
Robert A. Hall
Author: The Coming Collapse of the American Republic
(All royalties go to a charity to help wounded veterans)
"The share of income taxes for the wealthy is going up. But the share of income for the wealthy is also going up. The top 1% make about 23% of all the income. In 1980 they made 10%"...
Well jon then the wealthy have quite away to go before their collective wealth catches up to the amount that is extorted from them: The latest numbers from the IRS – based on 2008 tax returns – show that the top 1% of income earners paid 38.02% of individual income taxes paid...
"Once again, you have to take into account payroll taxes, that is Social Security and Medicare payroll taxes, that fall only on the first $100k in income blah, blah, blah..."...
Ahhh pseudo benny still trying to push the same delusiona lies...
Again try a dose of reality instead...
Jon highlights the fundamental difference here, with his assumption that someone making a million dollars per year somehow owes more or it isn't fair. The assumption is that either he owes his million dollars to the govt, because without their services he wouldn't have it, or that somehow because he makes more, it's "fair" for him to "pitch in" more. Well, the truth is that if anything, the millionaire is usually using much less govt services (funny radio segment about that, plus more from Adam including an epic rant). All this "fair share" nonsense is is an excuse to hold up those with more money so that moron politicians can buy more votes, with the Medicare and SS scams.
In fact, this whole budget "debate" is a complete scam. Obama purposely blew out the budget with the forecasts he handed in for the next decade, so he can then act as though he's cutting $3-4 trillion from those made up numbers, then make a fuss when the Tea Party complains about raising taxes to pay for that blown-out spending. I hope they stand up to him and force a govt shutdown, which will not cause a default, as the fed govt pulls in $200 billion/month and can easily pay for the $20 billion/month in interest payments. The only reason that's being held over our head is that Obama wants to borrow much more to pay for the rest of the blown-out budget, so he's holding the threat of not paying the interest over our heads to force us to let him borrow more. I hope the Tea Party calls his bluff and just shuts the damn thing down. That is really the ideal outcome anyway. :)
Hmm, screwed up the first radio segment link.
"Jon highlights the fundamental difference here, with his assumption that someone making a million dollars per year somehow owes more or it isn't fair"....
Ahhhh Sprewell, that's only the tip of Jon's iceberg you're tickling...
sprewell-
yeah.
only in DC would taking 8% increase down to 5% increases be called "cutting 3%".
everywhere else, it's called increasing 5%.
we have let these reprobates re-frame and characterize the issues so badly that it's difficult to even parse what they are saying anymore.
increase are called cuts.
my paying 50 times the US average income tax bill is called "fair share". 51% paying none at all is "protecting the middle class." future promises do not need to be accounted for today. flat pricing is regressive. i mean, it's really stunning.
wars are peacekeeping. don't even get em started on "homeland security".
Economic stagnation is not caused by marginal policies. Government has become the dominant US economic activity, doubling its share of GDP since 1950.
Govt spending is 41% of GDP. Regulations cost another 20% of GDP. Govt is 61% of US GDP. High unemployment, slow growth, expanding suppression of liberty, decline of risk capital. Virtual socialism.
The rich are getting richer because they must invest, and do invest, but more and more cautiously.
The middle class cannot invest because big government is eating their future, eating 61% of the economy with socialist schemes, such as with the social security and Medicare Ponzi schemes, the subprime housing disaster, the war against fossil fuels, the ethanol war on food prices, government schools tripling in cost while quality declines, and the college loans programs feeding the college bubble.
Government interference in the economy is gigantic, reckless and catastrophic.
Post a Comment
<< Home