Federal Budget Deficit Projected to be Over 9 Trillion of the next 10 years

[Vepres]

http://www.washingtonpost.com/wp-dyn/content/article/2009/08/25/AR2009082501158.html?hpid=topnews

Summary:

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This makes me mad. This is one of the most important issues to me.

 

[Vepres]

Bump.

[Marokai Backbeat]

Time to raise taxes.

[Torie]

Time to raise taxes.

How much do you have in mind (in increased tax rates)?  I consider myself lucky in so many ways. I have made most of the money I plan to make in life, so it isn't about me. But there is a transaction cost to taxing transactions, and the fewer transactions, the less economic efficiency, including well the transaction, of billing fewer hours in favor transactions that are not taxed -  e.g. chasing getting laid more.

[Marokai Backbeat]

Time to raise taxes.

How much do you have in mind (in increased tax rates)?  I consider myself lucky in so many ways. I have made most of the money I plan to make in life, so it isn't about me. But there is a transaction cost to taxing transactions, and the fewer transactions, the less economic efficiency, including well the transaction, of billing fewer hours in favor transactions that are not taxed -  e.g. chasing getting laid more.

Well first of all I apologize for coming across like a troll with one-liners. I genuinely do try to avoid that.

Ideally, I would reset the current tax brackets back to the Clinton years, income tax wise and the estate tax. I'd also uncap the payroll tax going into Social Security, create additional tax brackets (to make the system more progressive as opposed to simply taxing everyone above 300,000 with a flat rate) with something like 45 or 55% rates or higher, depending on the income it hits.

Of course there's alot of other things we could do too, like healthcare reform to cut costs, and cutting defense spending. Perhaps even raising the gasoline tax to be on par with the federal diesel tax, etc.

I'm sure I could think of more given time, but that's what flies off the top of my head.

[Marokai Backbeat]

Also, legalizing and taxing prostitution and marijuana couldn't hurt.

[Beet]

I am not sufficiently familiar with the possible sources of tax revenues and the amount they would bring in vis their social cost, as well as the political feasibility of each option, to comment. It is an interesting problem.

But the public debt often gets a disproportionate amount of attention when the larger problem is usually the private debt. Iceland's public debt, for example, was only 22% of GDP in 2008, on the verge of its complete meltdown, and needless to say, Iceland's GDP was tiny compared to the amount their banks ultimately lost.

And I am sure everyone has seen this by now:
http://2ndlook.files.wordpress.com/2008/03/us-debt-to-gdp-ratio.jpg

Total government debt, ex-GSE, was actually the only measure of US debt which actually improved from the early 1990s through the late 2000s, despite the Bush deficits. The reason public finances are in such poor shape right now is that the government has had to pick up the pieces from the shattered private and semi-private (GSE) debt system, but mostly private in the form of household debt.

If the public debt is looked at in isolation, even $9 trillion deficits do not look so bad.

As Paul Krugman has pointed out...
"Overall, the OMB puts debt in 2019 at 76.5% of GDP; that figure is slightly exaggerated, however, because various financial rescues get counted as additions to the deficit even though taxpayers end up with additional assets. Net of these assets, the debt in 2019 is 68.9% of GDP.

As I’ve pointed out, that’s bad, but it’s not horrific either by historical or international standards. On a comparable basis, federal debt hit 109 percent of GDP at the end of World War II, and hit a second peak of 49 percent at the end of the Reagan-Bush years. And a number of European countries have hit substantially higher debt levels without crisis.

The only reason to fear these numbers is if you believe that our political system is broken..."

British debt was about 260% of GDP in 1820. It was over 200% again as recently as World War II:


and our own public debt was much higher then as well than 69% of GDP. As one website points out,

"People assume national debt must be a disaster for the long term performance of the economy. But, it is worth remembering that in the 1940s, huge levels of National debt didn't prevent the UK:

    * Starting a universal National Health Care Service
    * Starting universal welfare benefits
    * Providing three decades of strong economic growth"

Is there reason to worry? Of course. But the reasons to worry lie more for the reasons Krugman points out (a broken political system), as well as the private debt and the problematic structure of the private economy. While American and British public debts in 1945 were much higher, their private debts were much lower. That is the crucial problem. But no attention is given to the private debt because they are assumed to be private problems, not public problems. In the common way of thinking, Verily has no reason to worry about my debts and I have no reason to worry about his debts. The current crisis *should* put an end to this thinking. When the build up of debt is systematic, it is just as public as any debt held by the government.

The real danger is private debt, and we must figure out ways to reduce private debt.

That is why I advocate things such as currency depreciation to break the mercantilism of the Asian central banks-- a smaller trade deficit or even a trade surplus in goods would create more jobs in the US without creating pressures on the US economy for debt- driven demand. And it is in fact how most other debt crises were resolved. Yes, there are limitations to this strategy because this time, it would involve weaker and smaller economies picking up demand slack from bigger ones, but it must be tried to some extent.

Finally, I would add that the only major power brought down solely for financial reasons was the Dutch Republic, and this occurred when the service on the debt exceeded the entire tax revenues for the whole Dutch economy. The reason that the Dutch debt ran up to such a high degree was because the Republic was in a vulnerable geopolitical position and continually involved in expensive wars from the mid-1600s through the War of Spanish Succession. Finally, its society was sharply polarized between the Republicans and Monarchists (Orangists). Again, political problems to worry about.

None of this is to say that a $9 trillion deficit is not a problem, or the $50 trillion in projected unfunded liabilities for SS and Medicare are not a problem. Only the insane would argue that. Rather the point is that I think the private debt / private sector economic imbalances and the political problems we have in this country deserve proportionately more attention than they generally receive.

/ end rant

[War on Want]

I agree with Beet, even compared to modern western countries our debt is about average.

[Torie]

Also, legalizing and taxing prostitution and marijuana couldn't hurt.

I agree.

Do you really want to uncap SS taxes, which would mean a 14% rate increase on wage earners (well maybe 10% if the tax deduction therefor for half of it remains in place) that earn about 110K per year or whatever? That would make work earners taxed at a far higher rate than coupon clippers, and raise the marginal tax rate to like 50%.  And that is before state income taxes. Is that what you really want? I am quite certain that will lead to more tax evasion, off books transactions, bartering, and well, F'ing in lieu of working as suggested above. I an not even sure after the dynamic scoring checks in, it would actually raise that much more revenue - sure some, what not nearly as much as static scoring would suggest.

[paul718]

Ideally, I would reset the current tax brackets back to the Clinton years, income tax wise and the estate tax. I'd also uncap the payroll tax going into Social Security, create additional tax brackets (to make the system more progressive as opposed to simply taxing everyone above 300,000 with a flat rate) with something like 45 or 55% rates or higher, depending on the income it hits.

In my dreams, I would like a flat tax (around 12%-15%) coupled with drastic spending cuts...but that's neither here nor there .  I'd be wary of creating higher top-marginal brackets because it encourages "hiding" income from the government, and it could disincentivize the creation of wealth.

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According to the CBO, the current House bill would raise the national deficit by $239 billion from 2010-2019 (see page 2).  The current Senate bill would add $597 billion (page 1).  Of course, I don't know if you were referring to those plans, specifically.

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I'm with that. 

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I worry that increasing the gas tax would increase transportation costs borne by producers, who would merely pass that cost onto the consumers.

Also, legalizing and taxing prostitution and marijuana couldn't hurt.

Certainly, but I wouldn't tax them at an an extraordinary rate.


I'd also like to add two points...

(1)  I'm off the opinion that if you're going to play with tax rates, they should be raised (within reason of course ) during periods of economic expansion, and lowered during periods of recession. 

(2)  Warren Buffet believes that the trade deficit is a far bigger threat to our future well-being than the national debt.  Though I'm not sure I agree with him.

EDIT:
(3)  I wouldn't mind seeing Social Security abolished. 

[Stampever]

It's time to recall the Stumulus package (for starters) before most of the money is wasted.

[Zarn]

Projections are usually low...

[IllinoisFreedomFighter]

This debt is disgraceful, regardless of whether it is public or private.  It was disgraceful when Bush ran up debt, and it is even more disgraceful now that Obama is making Bush look like a penny pincher.  Big government supporters like Krugman try to find some complicated metrics to sugar coat and confuse people.  Simply put, spending more than you take in is bad.  It is bad for a business, it is bad for an individual, why should it not be bad for a Government?  Higher taxes are a poor answer, as they would deteriorate our economic situation.  The answer is....

1. Remove all our troops from their military bases in over 120 countries.. we can spend less on military AND have a stronger one at the same time by not defending countries capable of defending themselves like Japan.
2. Phase out all Federal Programs that are unconstitutional (>60% of the Government by any measure) as in not listed in the enumerated powers in Article 1, Sec. 8.  Transition them to the state by...
3. Decriminalize drugs, the amount of $$ we spend jailing drug traffickers and users, especially marijuana users can be used at the state level to care for people on welfare, medicaid etc. as each state sees fit
4. End subsidies for politically connected industries such as ethanol, wind energy, oil companies, etc.
5. Phase out social security (see point 2)

The money saved from point one will eliminate the deficit.  The money saved from point two and four will eliminate the need for a Federal Income Tax, which I would eliminate after our National Debt is reduced to <15% of GDP.  5 Would have a one-time cost that would save money in the longer run, hopefully offset by 4.

[War on Want]

And everyone just ignores Beet's post...

[Ban my account ffs!]

Time to raise taxes.

How much do you have in mind (in increased tax rates)?  I consider myself lucky in so many ways. I have made most of the money I plan to make in life, so it isn't about me. But there is a transaction cost to taxing transactions, and the fewer transactions, the less economic efficiency, including well the transaction, of billing fewer hours in favor transactions that are not taxed -  e.g. chasing getting laid more.

I was thinking just offing the people born between 1946-1954 at the age of 65.  That should free up Social Security and Medicare for the rest of the Baby Boom generation that has been sorely ignored and the smaller Gen. X generation.

IllinoisFreedom FIghter brings up good points with the military.  I also support his idea of making states responsible for certain things.  I do think the federal government should provide equalization funding and guidelines to ensure standardization as much as possible.  For the crap I give the south for taking more than they pay in, I think it's the only way to get poor states on an even playing field. 

Social Security should remain federal, though.  I just support ending most payouts to the rich while increasing the tax on them and raising the retirement age in a staggered fashion to 70 or 72 by 2050.

I think Beet's post was very informative and it shows that while the general direction we're headed in is bad, we're not under water completely.  We've been in more dire straits.

I think there needs to be an income tax rise with the highest marginal rate of 60% on all income earned over $400,000.

There also needs to be strict regulation of the financials and real estate industries to prevent another crisis like we're in right now.

If and when we start seeing surpluses from the higher tax rates, all of it should go straight to debt servicing.  As we pay down the debt, that will free up more money that would go to interest.  That money could either be spent to pay down more debt or on other programs.

Ultimately I'd like to see major monetary expansion in federal infrastructure projects.  We need to significantly upgrade our railways and federal highways and interstates.  Too many people are losing productivity and getting into accidents because of out-of-date, poorly maintained roads.

Take a look at the freeways in cities like New York, Philadelphia, Detroit, Cleveland, or Minneapolis.. they're falling apart.  Large sums of state money are being used to upgrade federal highways which is ridiculous.

We have come to a point where not only are the states paying for local governments, but also for federal government mandates.  It's ridiculous.  If the federal government funded its mandates as it should, the states wouldn't be in nearly the bad state they're in right now.

Everybody just passes the buck on to the little guy and the middle class.  When the poor feel trampled on, they start a revolution.  When the middle class gets trampled on, they piss on the poor.

[Torie]

Good points Beet. I guess the problem with a lot of private debt, is that demand might decline sharply when folks refuse to further lend to the debt laden, or the debt laden default, and bring down financial institutions, which can slow the velocity of money, and cause losses to investors and creditors associated with such institutions.

Are there other problems with lots of private debt, or do I have my arms adequately around this matter?

[Marokai Backbeat]

In my dreams, I would like a flat tax (around 12%-15%) coupled with drastic spending cuts...but that's neither here nor there .  I'd be wary of creating higher top-marginal brackets because it encourages "hiding" income from the government, and it could disincentivize the creation of wealth.

Well the government can take measures to close loopholes and crack down on tax evasion. It's important to remember our tax rates now are historically quite low, and we've had them much much higher than what I'm proposing we return to. Our tax rates in the past never showed evidence of crippling the economy nor did they show any prevention of recovery. (Unless you point to some sales tax increases that Japan went through with, which hurt their recovery in the 90's, but they had larger troubles than a sales tax anyway.)

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It would probably raise the deficit initially, but a public plan is cheaper in several aspects than private insurance. It doesn't overcharge for premiums (if there are premiums at all) it doesn't spend a large amount of money on administrative costs (Medicare's teeny-tiny percentage on Admin. costs compared to private insurance Admin. costs) and it focuses on preventative care, which is cheaper than just caring for people who show up at an emergency room sick because they put off care due to a lack of insurance.

We'd also save alot of lives over the years, which amounts to more people in the workforce and more people paying taxes, but this is more of a long-term goal. Nonetheless a good one, though.

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The federal gas tax is about 18.4 cents, while the federal diesel tax is about 24.4 cents, so we're only talking about a 6-cent increase in the tax to bring it on par. The additional revenue would be modest, but would help with additional maintenance and road infrastructure.

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Of course.

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That's a general philosophy, yes, but it's not entirely accurate. Obviously you shouldn't make a point to increase taxes during the bad times, but not all taxes are necessarily bad and I think our history shows that taxes are not always destructive in recessions.

Let's take the Great Depression and FDR's administration as our first example. Congress and Hoover raised taxes substantially in 1932. FDR raised taxes again in 1934. (We're talking serious hikes here. FDR raised taxes around 10 times or so during his time in the White House.) Again in 1935 and Once more in 1940. Then a second time in 1940. Two more times, in 1941 and 1942. Did any of this substantially impact the money supply or GDP growth?

Not really. Taxes had no noticeable effect on the economy in terms of the money supply, or wages, or personal income (including later on), or industrial production, or the stock market's improvement over the years.

What about other tax hikes? Answer is again, no, there's no serious evidence that shows tax hikes were "destructive." Reagan increased taxes various times in several areas throughout his administration, during a time of economic expansion. Clinton raised taxes considerably immediately upon his ascension to the Presidency. This, as all other tax increases, did not have any destructive effect on the economy despite many Republicans (and some Democrats) claiming it would kill jobs and lead to a terrible recession. Beet has talked about this before.

What really is harmful is cutting spending and raising taxes, or just cutting spending altogether. It was FDR's reluctant cutting of spending, that Conservatives had been pestering him about, that largely caused the 1937 Recession, which was relatively short as FDR immediately engaged in more spending measures as the economy took a dive again.

Recessions are, arguably, a good time to increase taxes (certain taxes, not regressive ones, it's important to remember that) and increase wages, because the latter combats "sticky wages" and lingering unemployment that has come to define more recent recessions. It's best for the economy to recover and adapt around a new set of taxes and wages rather than attempting to adapt to them in times of economic expansion. (This assumes, of course, federal spending to offset the effects of taxes in the recession. As I said, no spending and higher taxes is certainly a deadly mixture.)

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As Beet said, there's alot more to worry about than the national debt. More direct worries would be trade deficits and private/household debt, as opposed to the US' debt, which while bad, is not critical.

It's time to recall the Stumulus package (for starters) before most of the money is wasted.

It's everyone's favorite "Democrat"! Though I agree of course, for different reasons. Mainly that it was too small.

Big government supporters like Krugman try to find some complicated metrics to sugar coat and confuse people. 

rofl

[IllinoisFreedomFighter]

What really is harmful is cutting spending and raising taxes, or just cutting spending altogether. It was FDR's reluctant cutting of spending, that Conservatives had been pestering him about, that largely caused the 1937 Recession, which was relatively short as FDR immediately engaged in more spending measures as the economy took a dive again.

Recessions are, arguably, a good time to increase taxes (certain taxes, not regressive ones, it's important to remember that) and increase wages, because the latter combats "sticky wages" and lingering unemployment that has come to define more recent recessions. It's best for the economy to recover and adapt around a new set of taxes and wages rather than attempting to adapt to them in times of economic expansion. (This assumes, of course, federal spending to offset the effects of taxes in the recession. As I said, no spending and higher taxes is certainly a deadly mixture.)

Cuts in spending may cause a recession in the short term, but in the long term the economy and the country is stronger.  Prosperity that is funded by Government spending is prosperity funded by debt, just like buying a big screen TV on a credit card or on a loan.  You will have to pay back- and so will Government, that is, unless it collapses first, in which case the USA will default on all of it's debts.  This is why treasury yields increase.  Investors simply need a higher rate of return to justify the risk of default, which is increasing EVERY DAY for US Treasuries given the amount of spending we are engaging in.  If we continue on this path, a collapse is inevitable!  The collapse in 1937 was due to the fact that we were living on debt, and needed to come down to earth and live within our means.

As far as taxes, the tax hikes in 1932 were the greatest, and 1932 was also the year the economy shrank the most.  So, the Great Depression hardly exemplifies why raising taxes helps the economy.  Nor was the economy particularly good in the 1940s, the boom in the economy came after the war, but 1929's stock market highs were not achieved again until 1955!  This is hardly an argument for higher taxes being good for the economy.  Reagan, despite some tax increases, still reduced taxes overall, and the economy improved.

Big government supporters like Krugman try to find some complicated metrics to sugar coat and confuse people. 

rofl

This is not an argument, or a point.  What evidence have you that debt is not simply debt.  No matter whether it is public or private, you are borrowing money, and HAVE TO PAY IT BACK!  No individual can borrow money and not have to may it back, that is why mortgage payments are regular, the loaner wants to know they are getting the money back.  Why does the same not apply to government?  You laughing at your computer screen does not change this fact.

[War on Want]

lol @ the idea that cutting taxes in the long run makes the economy stronger in the long run. Does our economy look strong right now?

[paul718]

lol @ the idea that cutting taxes in the long run makes the economy stronger in the long run. Does our economy look strong right now?

Are you attributing our current economic woes to the Bush tax cuts?

[War on Want]

lol @ the idea that cutting taxes in the long run makes the economy stronger in the long run. Does our economy look strong right now?

Are you attributing our current economic woes to the Bush tax cuts?

Of course not. I'm just saying that there is not a shred of evidence that shows that tax cuts coupled with spending cuts help the economy in the long run. To me it looks like Reagan's deregulation of the economy is partial cause of this mess we are in right now.

[Beet]

Good points Beet. I guess the problem with a lot of private debt, is that demand might decline sharply when folks refuse to further lend to the debt laden, or the debt laden default, and bring down financial institutions, which can slow the velocity of money, and cause losses to investors and creditors associated with such institutions.

Are there other problems with lots of private debt, or do I have my arms adequately around this matter?

Yes, the problems with private debt are well documented, and you have a good idea of what they are. But besides the absolute level of debt, there is also the problem of an economic model and structure where our growth as an economy is dependent on the rate of debt growing faster than the rate of the economy. This is where I appreciate some of the nuttier people Sam Spade cites, like Antal Fekete. Although I have yet to see the theoretical underpinning of Fekete's work, he does point out an empirical relationship that, in recent decades, more and more debt has been required for less and less growth. That cannot make anyone feel very good.

I am beginning to think we as a society have got our values all wrong. Everything is way too concentrated on money and material wealth, things like "GDP" and having the best economy and stock market. This kind of thinking is so entrenched in our society that I doubt it'll ever disappear, but I would hope people would look for their values elsewhere. I sound like a Christian conservative now...

[Marokai Backbeat]

I am beginning to think we as a society have got our values all wrong. Everything is way too concentrated on money and material wealth, things like "GDP" and having the best economy and stock market. This kind of thinking is so entrenched in our society that I doubt it'll ever disappear, but I would hope people would look for their values elsewhere. I sound like a Christian conservative now...

I've always thought the same. We can be Christian Democrats together.

[paul718]

lol @ the idea that cutting taxes in the long run makes the economy stronger in the long run. Does our economy look strong right now?

Are you attributing our current economic woes to the Bush tax cuts?

Of course not. I'm just saying that there is not a shred of evidence that shows that tax cuts coupled with spending cuts help the economy in the long run. To me it looks like Reagan's deregulation of the economy is partial cause of this mess we are in right now.

When Reagan took office, the "misery index" (unemployment + inflation) was at 20.6. (the highest since WWII).  By 1986, it fell to 8.8.  Also, the almost annual net outflow of capital was immediately reversed to net inflows that dwarfed our previous losses.   

When the top-marginal rate is lowered, the highest earners have more capital to invest in publicly-traded companies, and/or their own small businesses, who in turn have more capital with which to hire more workers.  A similar effect happens when upon lowering the capital gains tax.  Also, lowering the corporate tax attracts foreign investment. 

Sure, we can argue the stats all day.  Plenty of people believe that the '80s recovery had more to do with the natural business cycle than Reagan's tax cuts.  But I don't see any evidence showing that tax cuts have contributed to our current economic condition.

1. Remove all our troops from their military bases in over 120 countries.. we can spend less on military AND have a stronger one at the same time by not defending countries capable of defending themselves like Japan.

I think our military presence around the world has more to do with power projection than protecting the host country.  I'd argue that pulling out of our foreign bases would weaken our military.

[memphis]

These predictions are never right. 10 years ago, it was all surpluses as far as the eye could see. Take it year by year,