The U.K. Learns a Lesson About the Laffer Curve
From a WSJ editorial on how higher marginal tax rates in the U.K. lowered tax revenues from Britain's top earners, confirming that the Laffer curve is real and that "if you tax something, you actually do get less of it":
"Speaking of higher taxes (and President Obama always does), there's news from once fair Britannia. Preliminary figures out this week show that Britain's 50% top marginal income-tax rate may have reduced tax revenue from top earners by as much as 5%, compared to the old 40% top rate. Tax revenue from those filing self-assessments due January 31 was down some £500 million versus last year.
What this week's numbers teach, however, is that Britain's richest taxpayers are simply shifting their incomes, or themselves, offshore, or deferring income, or otherwise arranging their affairs to avoid the confiscatory new top tax rate. Maybe that's unfair, too—the rich are usually better at protecting their assets—but it's the predictable consequence of a tax rate whose animating purposes are envy and spite."
45 Comments:
I think that the maximum tax revenues are collected when the top marginal tax rate is in the low 20s. This has to include state, local, and medicare taxes.
After the top bracket rises above the low 20s (say 23% as a hard number), incentives get distorted, and tax revenues flatten or fall.
After 40%, things get *really* distorted.
I am deeply concerned about America's richest people. I propose we monetize much of the national debt.
Rich people pay income taxes, and they are the ones who will have to pay down the national debt (the huge entitlement programs are funded by payroll taxes, largely levied on middle-class workers, so I am unconcerned about such taxes).
Think of those rich people paying taxes to pay down the national debt.
If the Fed goes to more QE, that monetizes the debt, puts more money into circulation, hopefully bringing on more inflation, and that inflation will also help with deleveraging.
Rich people will benefit from having to pay off less debt, both absolutely, and relatively, and the economy grows and inflates, reducing the relative size of the national debt.
Some might say the purpose of fiscal and monetary policy is not to coddle the wealthy, but I say if they feel coddled, and are coddled, they will invest more, or at least build bigger houses that we can get jobs working on.
The real lesson should be that big government is dangerous and that spending is the problem. The income tax is theft no matter how low the rate. End of story.
To cut taxes on the richest Americans, we must reduce debt payments and agency outlays. Rich people are suffering and need tax cuts, so we must cut federal spending financed by income taxes.
The entitlement programs (Social Security and Medicare) are financed by payroll taxes that fall largely on the middle-class and people who have jobs, so who cares about those taxes.
To cut federal spending, we can cut agency outlays and monetize the debt.
We can monetize about 25 percent of the debt with only a slight increase in inflation, but huge improved outlook for the wealthy, who would have about $4 trillion in debts lifted off of their over-burdened shoulders. Yahoo!
Then we cut agencies listed below--I suggest we start at the top, to get the biggest savings. Cut in about half, I would say.
Federal Agencies and The Number of Parasitic Employees
Defense 3,200,000
Veterans Affairs 240,000
Homeland Security 200,000
Treasury 162,119
Justice 124,870
USDA 100,000
DOT 100,000
Health and Human Services 62,999
Interior 57,232
Commerce 41,711
NASA 19,198
EPA 18,879
State 18,000
Labor 16,818
Energy 14,000
GSA 14,000
Remember, this monetization and agency cutting must be done to help rich people have lower taxes.
very informative post.
small business loan
I'm afraid you are leaping to unfounded conclusions. Firstly, the figures are for total self-assessed tax revenue - the majority of which is for small business owners earning far less than the tax rate - and in the UK, there are significantly fewer profits around than last year. The figures say nothing about the top tax rate individually.
Secondly, and perhaps more importantly, HMRC had a two-day strike at the deadline for submitting tax returns. An estimated 20% of all forms are received during these two days. This means that the official statistics are likely to be an underestimate - and revised statistics will be published in due course. We should wait for this revision (and a breakdown into tax paid versus company profits) before drawing conclusions.
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Ah, yes, the 20% that haven't filed yet will be vastly different from the group that already has. Unlike the 80%, this not so small minority will not respond to incentives.
We can expect this group to be the better, more enlightened man willing to toil for the state that Lenin dreamed of.
Will they pay enough to at least offset the deficit in tax revenue, one wonders. Unlikely.
...and in the UK, there are significantly fewer profits around than last year
Taxes reduce reward for a given level of risk. You can expect more businesses to work overtime to find write-offs to reduce their taxable gains and you can expect fewer investments to be undertaken as they fail to clear the new, higher, hurdle. In other words, profitability is not independent of taxes and confiscation of the fruits of one's labour does not encourage one to toil.
I doubt even the Libs don't understand this in Britain. They feel compelled to beat the old, dead socialist/class warfare horse in the hopes of winning elections. The welfare of Britons is the least of their concerns.
pseudo benny making like an Obama_bot say: "Rich people pay income taxes, and they are the ones who will have to pay down the national debt (the huge entitlement programs are funded by payroll taxes, largely levied on middle-class workers, so I am unconcerned about such taxes)."...
So does that mean you're leeching off the rest of the productive psedudo benny?
Are you part of the 49%er mob?
Maybe we should take another look at Sen. Rand Paul's idea, eh psedudo bennypsedudo benny?
Want to save $500 billion this year? Sen. Rand Paul, R-Ky., has a way to do it.
"Rich people will benefit from having to pay off less debt, both absolutely, and relatively, and the economy grows and inflates, reducing the relative size of the national debt."
and they will lose far more as the value of their savings erodes.
as the guy you purport to be trying to help, let me assure you, none of us want what you are selling.
the way to pay down national debt is reduce spending, broaden the tax base again (so 85% pay income tax like the 80's as opposed to 50% now), and help the economy grow.
rampant inflation, the destruction of savings, impossible investment, and the capital and human flight this would cause would wreck the US.
oh, and you forgot about the explosion of social security and medicare/aid costs (inflation indexed) this will drive.
these expense will soar, pushing the deficit hugely wider. bigger deficits is NOT how you pay down debt.
Andy,
"I'm afraid you are leaping to unfounded conclusions."
It's entirely possible that this particular situation has more information to come, and you may be right. But these conclusions are founded in a long, repeating history....and this would have to be the exception that proves the rule if this outcome is different than the ones before.
Morganovich,
"...broaden the tax base again (so 85% pay income tax like the 80's as opposed to 50% now), and help the economy grow."
I completely agree, though I don't know how on earth to accomplish this politically. Imagine the howls of the Democrats, the media, and idiots like Benji if you try to "raise taxes on the poor." Now try and imagine it happening under President Romney, megamillionaire, formerly of Bain Capital.
paul-
i know what you mean.
the problem is that we have a majority of non taxpayers voting to be non-taxpayers.
i think the way to sell it is "flat tax, no deductions".
everyone hates doing their taxes, and maybe 1 in 100 really understands them.
put in an incredibly simple (and more inclusive) system, and i think it might get enough support.
i actually liked cain's 999 plan. eliminated all the stupid arbs and gave everyone skin in the game.
but tax dialogue in this country is badly distorted. people describe a flat tax though it's not progressive, but it is and deeply so.
looking at % of income taxed is very misleading.
you don't price anything else that way.
if you make $200k and i make $100k and we go to the burger barn and both get a cheesburger, we both pay the same. we expect that and call it "flat".
yet somehow, on tax day, you paying twice what i do is also called flat.
that's a preposterous framing of "flat".
no other good or service works that way.
further, contrary to timmy g's outlandish claims today, rich americans should NOT have to pay more.
they use less government, not more.
they don't use medicare, unemployment, federal subsides for housing, etc.
anything to do with having a more valuable home to protect already comes out in higher property taxes.
i find it astounding how twisted the nature of that discussion has become.
flat taxes (like sales tax or fica) get called regressive, but they aren't. the wealthy pay far more. it's only this % nonsense that makes it look so.
Thoughts on ECRI's statement that they stand by their recession call? I do remember, however, that in September they said the recession was "imminent" I suppose if you keep saying a recession is around the corner you will eventually be right.
Want more people to pay taxes? Make it cheaper to pay than to avoid payment. If taxes are painless, more people pay. The higher the rates, the cheaper it is to find lawyers and accountants and politicians to carve out a personal tax break.
Let's face the facts, there are hundreds of federal programs that have outlived their usefulness, are too expensive to administer, create more problems than solutions, and/or are actually jobs programs for college graduates that would otherwise be unemployable.
"Let's face the facts, there are hundreds of federal programs that have outlived their usefulness..."
...the very moment they were created.
Why do we need a federal department of education, or energy, or the various obesity task forces, or the growing army of czars or the rest of the long list of Orwellian bureaucracies?
We should stop making lists of things to cut and start making liss of things to keep. The list would be much much shorter.
Then we cut agencies listed below--I suggest we start at the top, to get the biggest savings. Cut in about half, I would say.
Not enough. The federal government needs to cut about 90-95% of its employees because most of the things that it does violate the Constitution.
and they will lose far more as the value of their savings erodes.
Only if they keep their 'savings' in fiat paper. I had a chat with one of Canada's richest people a few months back. He said that more than 65% of his assets were in PMs, PM shares, energy shares, and hard assets. A typical smart 'rich person' can protect his/her purchasing power by allocating as little as 20% of savings to precious metals.
as the guy you purport to be trying to help, let me assure you, none of us want what you are selling.
Sadly, many in the financial sector do. My son was watching Kudlow with me and was puzzled about why the people being interviewed did not understand economics or the implications of what they were suggesting. I tried to explain to him that when Kudlow called Ron Paul an Austrian most of the commentators who were on did not really understand what he meant and that even Kudlow was confused. I laughed when he said that his friends knew because 'Sexy Phil' always talked about Austrian economics on his Youtube broadcasts and about how evil the Keynesian/Monetarist big government people were.
Perhaps there is hope. It seems that the kids want to understand how things work better than their teachers and parents. My son's friends are now interested in collecting junk silver and nickels. When Benny has his way he can ask them for a loan.
the problem is that we have a majority of non taxpayers voting to be non-taxpayers.
Which is why the system will be inflated until the purchasing power of the currency is gone. There is no incentive for politicians to do the right thing because there are always political opportunists promising free lunches to the economically illiterate voters.
morganovich: the problem is that we have a majority of non taxpayers voting to be non-taxpayers.
A large majority of Americans have a share of the federal tax burden. Nearly all workers incur payroll taxes. Nearly all consumers incur excise taxes. What you mean is that a near majority pay no income tax, during the worst downturn since the Great Depression.
What is really happening is that the payroll tax payers have been supporting the income tax payers for the last decade (in the way of using payroll tax surpluses to cover shortages in the rest of the budget that should have been paid through the income tax). And the bill's coming due.
Take heart, though. The U.S. was running cash surpluses just a little over a decade ago. With resolve, there is no reason why the U.S. can't return to financial health once the worst of the recession's effects have receded.
Take heart, though. The U.S. was running cash surpluses just a little over a decade ago.
You're easily fooled by accounting shenanigans.
"The U.K. Learns a Lesson About the Laffer Curve"
U.K. planners were well-aware of the so-called Laffer Curve. The idea that there is elasticity in taxation is not a new concept.
morganovich: You're easily fooled by accounting shenanigans.
It's simply a fact that the U.S. was running a cash surplus.
The on-budget was essentially balanced. That means there was enough money for the U.S. to pay all its bills, with enough left over to retire publicly held debt roughly equal to its obligations to its various trust funds. That's a good place to be.
A large majority of Americans have a share of the federal tax burden. Nearly all workers incur payroll taxes.
That is sold as a pension plan. They pay contributions and get payouts when they retire. That is a lot different than paying income taxes, where you get nothing in return.
Nearly all consumers incur excise taxes.
That is voluntary. If you don't want to pay the tobacco tax don't smoke or go to your local Indian reservation.
What you mean is that a near majority pay no income tax, during the worst downturn since the Great Depression.
No, I think that what he means is that they didn't pay even before the downturn.
What is really happening is that the payroll tax payers have been supporting the income tax payers for the last decade (in the way of using payroll tax surpluses to cover shortages in the rest of the budget that should have been paid through the income tax). And the bill's coming due.
LOL...Finally you admit that Congress has looted the 'trust funds' and spent the contributions to buy votes. Who knows, you might eventually figure out that the problem is really spending too much, not taxing too little.
Take heart, though. The U.S. was running cash surpluses just a little over a decade ago.
Wait a minute. You just pointed out that those 'surpluses' came from looted contributions.
With resolve, there is no reason why the U.S. can't return to financial health once the worst of the recession's effects have receded.
Sure there is. The reason is called math. Total unfunded liabilities stand at more than $100 trillion. Federal debt stands at 101% of GDP. The GAAP deficit is nearly 30% of GDP. There is no way to recover. You can only reduce the purchasing power of the USD and default in real terms. That would put you on par with Greece.
A large majority of Americans have a share of the federal tax burden. Nearly all workers incur payroll taxes.
That is sold as a pension plan. They pay contributions and get payouts when they retire. That is a lot different than paying income taxes, where you get nothing in return.
Nearly all consumers incur excise taxes.
That is voluntary. If you don't want to pay the tobacco tax don't smoke or go to your local Indian reservation.
What you mean is that a near majority pay no income tax, during the worst downturn since the Great Depression.
No, I think that what he means is that they didn't pay even before the downturn.
What is really happening is that the payroll tax payers have been supporting the income tax payers for the last decade (in the way of using payroll tax surpluses to cover shortages in the rest of the budget that should have been paid through the income tax). And the bill's coming due.
LOL...Finally you admit that Congress has looted the 'trust funds' and spent the contributions to buy votes. Who knows, you might eventually figure out that the problem is really spending too much, not taxing too little.
Take heart, though. The U.S. was running cash surpluses just a little over a decade ago.
Wait a minute. You just pointed out that those 'surpluses' came from looted contributions.
With resolve, there is no reason why the U.S. can't return to financial health once the worst of the recession's effects have receded.
Sure there is. The reason is called math. Total unfunded liabilities stand at more than $100 trillion. Federal debt stands at 101% of GDP. The GAAP deficit is nearly 30% of GDP. There is no way to recover. You can only reduce the purchasing power of the USD and default in real terms. That would put you on par with Greece.
"The U.S. was running cash surpluses just a little over a decade ago"...
Not on planet earth zach...
Explanation...
Historical Debt Outstanding - Annual 2000 - 2010
Historical Debt Outstanding - Annual 1950 - 1999
VangelV: That is sold as a pension plan. They pay contributions and get payouts when they retire. That is a lot different than paying income taxes, where you get nothing in return.
Yes, with the caveat that it's a pay-as-you-go system.
VangelV: That is voluntary.
Many Americans also pay gas, phone and airline taxes. These also go into designated trust funds.
VangelV: No, I think that what he means is that they didn't pay even before the downturn.
Morganovich mentioned two dates, the 1980's when income tax participation was about 85%, and today which is about 50%. Non-income tax payers rose rapidly during the Reagan-Bush years, leveled off somewhat during the Clinton Administration, then rose again with the Bush tax cuts, then spiked during the recession.
http://www.heritage.org/multimedia/infographic/2012/02/nearly-half-of-all-americans-dont-pay-income-taxes
VangelV: Finally you admit that Congress has looted the 'trust funds' and spent the contributions to buy votes.
We've never denied that the U.S. is running unsustainable deficits. As we just said, income tax payers have been riding on the backs of the payroll tax payers, and the bill is coming due.
VangelV: You just pointed out that those 'surpluses' came from looted contributions.
The cash surpluses were used to lower debt held by the public. The U.S. was buying back bonds from the open market.
VangelV: Total unfunded liabilities stand at more than $100 trillion.
Over what period? What is the expected GDP over that same period?
juandos: Explanation...
Your numbers concern the total debt, which includes debts to the various trust funds. Compare 1999 to 2000. The deficit was less than $18 billion. In a $2 trillion federal budget, the U.S. was essentially balanced.
Meanwhile, the cash balance was positive by $236 billion. That money was used to retire debt held by the public.
http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/108xx/doc10871/historicaltables.pdf
"Meanwhile, the cash balance was positive by $236 billion..."...
What was it that methinks commented?
Oh yeah, "You're easily fooled by accounting shenanigans"...
Call it anything you want zach but at the end of it all this country as many others have note deeply in debt...
juandos: Call it anything you want ...
We call it what it is. The U.S. was running a cash surplus at the end of the Clinton Administration, and on-budget was essentially balanced. Your own figures bear this out, in billions.
Total Debt
1999 5,656
2000 5,674
+18 to total debt
Debt held by the public
1999 3636
2000 3405
-231 to debt held by the public
Intragovernment holdings
1999 2,020
2000 2,269
+249 to intragovernment holdings
The U.S. had a large cash surplus. Sum total, the U.S. retired $231 billion in publicly held debt, while incurring $249 billion in paper obligations to the trust funds, resulting in an increase in the total debt of $18 billion, which in a $2 trillion budget is essentially balanced.
231 - 249 = -18
V: "VangelV: Total unfunded liabilities stand at more than $100 trillion."
"Over what period? What is the expected GDP over that same period?"
*yawn*
Is it really necessary to explain NPV to you AGAIN - "Larry"?
According to Social Security, the NPV of unfunded liabilities over 75 years is $5.3 trillion.
http://www.ssa.gov/OACT/TR/2009/tr09.pdf
According to Medicare, the NPV of unfunded liabilities over 75 years is $13.4 trillion.
http://www.cms.gov/ReportsTrustFunds/downloads/tr2009.pdf
Total liabilities are a higher number, of course. Let's use the $100 trillion. That's over 75 years. What is a reasonable, but conservative estimate of U.S. GDP over that period?
Z: "Total liabilities are a higher number, of course. Let's use the $100 trillion. That's over 75 years. What is a reasonable, but conservative estimate of U.S. GDP over that period?"
There is no "reasonable" way of estimating GDP 75 years in the future. Any such attempt is merely an exercise in numbers as meaningless as guessing what the mean temperature of the Earth will be in a similar time period. The outcome can be whatever you want it to be, by merely adjusting a few knobs a little bit one way or another.
A far more fruitful discussion might be trying to determine how many angels can stand on the head of a pin.
""Over what period? What is the expected GDP over that same period?"
This is, of course, a question from Zachriel, that wasn't attributed in my previous comment.
Many Americans also pay gas, phone and airline taxes. These also go into designated trust funds.
That is true but it is also true that they do so voluntarily. If you are unhappy with airport fees you should not fly. I am taking the kids to NY City next month and have chosen to take a bus, train, or drive a car rather than pay the $136 per person in airport taxes. My wife did not like the phone taxes so she chose an internet based service that avoids them and costs less than a third of what we used to pay. If you don't like the gasoline taxes live in the city where you don't have to drive a car. I certainly did not for quite some time when I was younger. Not only was it much cheaper it certainly helped increase my fitness level and improve my overall health.
Morganovich mentioned two dates, the 1980's when income tax participation was about 85%, and today which is about 50%. Non-income tax payers rose rapidly during the Reagan-Bush years, leveled off somewhat during the Clinton Administration, then rose again with the Bush tax cuts, then spiked during the recession.
I do not dispute this. Many people did have to file before the Bush tax cuts. But few in the bottom 50% had much to pay in income tax. And when the benefits were included you still have the bottom half getting more from the government than it paid to the government in taxes.
We've never denied that the U.S. is running unsustainable deficits. As we just said, income tax payers have been riding on the backs of the payroll tax payers, and the bill is coming due.
your statement is not true. The top 10% earn less as a share of income but pay more as a share of taxes than they used to. They are certainly not "riding on the backs of the payroll tax payers" and have paid most of the bills all along the way. The payroll tax players have a way of avoiding it. If they don't like the taxes they can stop working for a living. That is exactly what I did a decade ago and I am not troubled that I will not collect as much SS when I am eligible in 15 years as I could have because I did not contribute.
It is very possible to live as a free man even in a country that is as intrusive as Canada or the US. It is possible to do so by following all of the laws and rules without worry that you are not in compliance. And when the s**t hits the fan it is possible to insulate yourself from the harm done to savers, workers, and investors if you know what you are doing.
The cash surpluses were used to lower debt held by the public. The U.S. was buying back bonds from the open market.
Not exactly. The surpluses were spent on general operations. Now that the plans are running deficits we will see where the money to pay out beneficiaries will come from. I would guess that we will have to see cuts in military, education, housing, commerce, state, agriculture, interior, and several other places.
Over what period? What is the expected GDP over that same period?
Now. To make the payments you need to have more than $100 trillion set aside right now. That number goes up by around 30% of GDP each year.
See the problem?
Call it anything you want zach but at the end of it all this country as many others have note deeply in debt...
You guys don't get it. Zach is using cash accounting and totally ignoring accrued liabilities. If you do that it is easy to show cash surpluses in a number of years even as the debt actually went up.
Is it really necessary to explain NPV to you AGAIN - "Larry"?
Since the first 157 times were not sufficient I would say yes.
Total liabilities are a higher number, of course. Let's use the $100 trillion. That's over 75 years. What is a reasonable, but conservative estimate of U.S. GDP over that period?
That is not what the term unfunded liabilities means. It means that you have to have $100 trillion in a real trust fund today to make all of the payments that you promised for the future.
Ron H: There is no "reasonable" way of estimating GDP 75 years in the future.
By similar reasoning, there's no "reasonable" way of estimating living or medical expenses in the future. GDP could skyrocket. Or not. Medical expenses could plummet. Or not. Consequently, you think VangelV's concerns about long term liabilities are unfounded.
Z: "By similar reasoning, there's no "reasonable" way of estimating living or medical expenses in the future. GDP could skyrocket. Or not. Medical expenses could plummet. Or not. Consequently, you think VangelV's concerns about long term liabilities are unfounded."
Unlike mere guesses about future GDP, medical expenses, or temperature, concerns about current unfunded liabilities are based on promises of future benefits and estimates of future tax revenues, all available at government agency websites.
If you need to refresh yourself on any of that, please refer to past discussions of the subject at this blog, and refer to the appropriate US government websites for unfunded liability information they provide.
We don't plan to have the same fruitless discussion with you again.
VangelV: That is true but it is also true that they do so voluntarily. If you are unhappy with airport fees you should not fly.
Travel is not always an option, especially driving to work.
VangelV: The top 10% earn less as a share of income but pay more as a share of taxes than they used to.
We weren't talking about the top 10%, or any particular demographic. If you take payroll tax surpluses out of the equation, then it's pretty obvious that the tax rates are too low to sustain government spending. Bush's tax cuts were explicitly used to give reductions to income tax payers at the expense of payroll tax surpluses. Now, the bill is coming due.
VangelV: The surpluses were spent on general operations.
Not at the end of the Clinton Administration. We provided that data above.
Zachriel: What is the expected GDP over that same period?
VangelV: To make the payments you need to have more than $100 trillion set aside right now. That number goes up by around 30% of GDP each year. See the problem?
Yes, you're avoiding the question while throwing around unsupported numbers. Comparing expenses to GDP might give us a better idea of the actual problem.
http://www.ssa.gov/oact/TRSUM/images/chartA.jpg
The combined cost of Social Security and Medicare was 8.4% GDP in 2010, 11.8% of GDP in 2035, is projected to be 12.2% of GDP in 2085. These are not small numbers by any means, but certainly not
VangelV: Zach{riel} is using cash accounting and totally ignoring accrued liabilities.
We're quite aware of the distinction. The question is whethe the U.S. will have the money it needs when it needs it.
VangelV: That is not what the term unfunded liabilities means. It means that you have to have $100 trillion in a real trust fund today to make all of the payments that you promised for the future.
We had thought you had misspoke. It's not $100 trillion in unfunded liabilities. That's the total liabilities, but there is an existing revenue stream. We gave the amount of unfunded liabilities above. Also, the U.S. doesn't have to have $100 trillion today to meet its obligations. This shows that it is you that is misunderstanding what NPV means in terms of a liability spread out over future years.
Ron H: Unlike mere guesses about future GDP, medical expenses, or temperature, concerns about current unfunded liabilities are based on promises of future benefits and estimates of future tax revenues, all available at government agency websites.
Nope. It requires estimating the costs of medical care, which depends on inflation among other factors. And for all we know, robots may take over medical care and drive the costs down. Or they may find a way to make people live longer, but at a much higher expense. Nevertheless, we look at both sides of the equation, expected revenue and expected expenses, in order to make prudent plans, even while we know estimates are just that, estimates.
So what is a reasonable expectation of the total GDP over the next 75 years? Let's see if we can put some limits on it. Is is reasonable to suppose it will be over $1? Over $1 million? Over $1 trillion? Over $1 trillion per year? How about 1% growth on average? 2% growth? Certainly, some of these estimates are more reasonable that others.
Ron H: refer to the appropriate US government websites for unfunded liability information they provide.
We cited that very data above.
-
According to Social Security, the NPV of unfunded liabilities over 75 years is $5.3 trillion.
http://www.ssa.gov/OACT/TR/2009/tr09.pdf
According to Medicare, the NPV of unfunded liabilities over 75 years is $13.4 trillion.
http://www.cms.gov/ReportsTrustFunds/downloads/tr2009.pdf
Total liabilities are a higher number, of course.
Travel is not always an option, especially driving to work.
I have no idea what you are talking about. I chose to live close to where I worked. I could have walked, biked, or driven without using much gasoline. You live in a free country and are free to arrange your life as you choose to have the most favourable outcome. So does everyone else who takes responsibility for his/her life.
We weren't talking about the top 10%, or any particular demographic. If you take payroll tax surpluses out of the equation, then it's pretty obvious that the tax rates are too low to sustain government spending. Bush's tax cuts were explicitly used to give reductions to income tax payers at the expense of payroll tax surpluses. Now, the bill is coming due.
But tax revenues went UP after Bush cut the rates. Revenue was not the problem. Spending was. It is time to cut that spending by reducing the unconstitutional activities of the federal government. There is no need for HUD, NASA, Department of Energy, Department of Education, Commerce, and all kinds of organisations that are a drag on economic activity. Get rid of them and American taxpayers will not have to pay as much of their income to the government.
Not at the end of the Clinton Administration. We provided that data above.
No. The fact that you have no clue what you are looking at does not show anything. Revenue is fungible. Clinton put everything in the pot and spent it on a number of things. SS contributions were no more allocated in a meaningful way than the income tax that you paid. It all went into the pool and got spent according to the wishes of the bureaucrats.
Yes, you're avoiding the question while throwing around unsupported numbers. Comparing expenses to GDP might give us a better idea of the actual problem.
Not at all. I use real world accounting while you support your silly assertions by pretending that accrued liabilities do not matter. I provided the data before but if you wish you can go to the 2010 Financial Report of the United States Government. It showed a GAAP-based 2010 deficit of $2.080 trillion, not the much lower number that is cited by people who try to hide behind cash accounting. The problem is that you have to go to the footnotes to find that the reported figure does not include the changes in the NPV of the unfunded liabilities for SS and Medicare. Include those numbers and you are looking at around $5 trillion which is around one third of GDP.
Of course you are free to believe what you want and to ignore GAAP accounting or the effect of interest rate changes on the NPV levels for all of the trust funds. Our more financially literate friends know that when the rates fall the NPV of the unfunded liabilities go up. We have already heard about this on some of the conference calls as companies tell us that they will have to divert a large part of their revenues to fund their pension plans. Unlike the companies, which have to comply with the pension laws and use GAAP accounting the government can ignore the requirements and kick the can down the road.
What I find fascinating is where all this leads. Anyone can see that the 'fix' is very easy. To reduce the NPV of the unfunded liabilities all the government has to do is to print a lot of money while it drives interest rates much higher. A few years of 100% plus of inflation will wipe away all of the unfunded liabilities and the government can start at zero again. Of course, the benefits will not be able to buy anything but I am sure that as long as nominal payments are made simpletons like you will claim that there was no real default and that things are as planned because a pay-as-you-go system is permitted to make all kinds of changes as determined by the bureaucrats who run it.
If you think it can't happen, try learning some history. And while you are at it, try a bit of accounting.
We're quite aware of the distinction. The question is whethe the U.S. will have the money it needs when it needs it.
Not at all. The question is what will the currency buy you and what will people use as a medium of exchange instead of the currency.
We had thought you had misspoke. It's not $100 trillion in unfunded liabilities. That's the total liabilities, but there is an existing revenue stream. We gave the amount of unfunded liabilities above. Also, the U.S. doesn't have to have $100 trillion today to meet its obligations. This shows that it is you that is misunderstanding what NPV means in terms of a liability spread out over future years.
IOUs are not marketable assets. They have no value. The unfunded liabilities are what they are. Wishing and hoping will not change anything.
The NPV of the unfunded liabilities can easily go down if the rates head back up or if the Fed simply monetizes the problem by exchanging newly printed money for the IOUs in the trust funds. But that is not the type of solution that most people look for because either of those options will present a very large problem for the current structure and will require huge economic adjustments that most Americans are not prepared for.
As I wrote above, anyone who understands politics, logic, and a bit of math knows that there is no way out of this problem that will not demand a huge structural adjustment. The game has run too far for the unattended problem to be solved by simple growth.
Zachriel: Travel is not always an option, especially driving to work.
VangelV: I have no idea what you are talking about.
It depends on where you live. In the U.S., neighborhoods are often designed so that work and home are separated geographically. More particularly, someone might lose their job closer to home, and being the responsible person that they are, they take work where they can find it.
VangelV: But tax revenues went UP after Bush cut the rates.
Total receipts peaked in 2000 and didn't recover until 2005. Income tax receipts peaked in 2000 and didn't recover until 2006.
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=203
VangelV: No. The fact that you have no clue what you are looking at does not show anything. Revenue is fungible.
Yes, and on-budget was essentially balanced, while the Social Security surpluses were used to retire debt held by the public. We provided the data, with citations, above.
VangelV: The unfunded liabilities are what they are.
Yes, they are liabilities that are due in the future. That does not require putting $100 trillion aside today. Specifically,
VangelV: To make the payments you need to have more than $100 trillion set aside right now.
That is a false statement, and shows that you don't know what NPV means with regards to a liability that is due over a period of years, specifically the NPV of the constant revenue stream.
Meanwhile, you ignored this.
Zachriel: Comparing expenses to GDP might give us a better idea of the actual problem.
http://www.ssa.gov/oact/TRSUM/images/chartA.jpg
The combined cost of Social Security and Medicare was 8.4% GDP in 2010, 11.8% of GDP in 2035, is projected to be 12.2% of GDP in 2085.
And you ignored your misstatement about unfunded liabilities.
Zachriel: According to Social Security, the NPV of unfunded liabilities over 75 years is $5.3 trillion.
http://www.ssa.gov/OACT/TR/2009/tr09.pdf
According to Medicare, the NPV of unfunded liabilities over 75 years is $13.4 trillion.
http://www.cms.gov/ReportsTrustFunds/downloads/tr2009.pdf
VangelV: As I wrote above, anyone who understands politics, logic, and a bit of math knows that there is no way out of this problem that will not demand a huge structural adjustment. The game has run too far for the unattended problem to be solved by simple growth.
Sure. It will require changes to the program. Even if you can find a way to limit health care inflation, it will still require additional taxes. But it is nothing that is beyond the capabilities of the U.S., nor does it require setting aside the untenable amount of $100 trillion today or all is lost.
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