They'll have to move on this soon. The thing to do is 1. tight monetary policy, 3.5% NGDP growth, as a goal to be approached over years. You do that because it tends to push down nominal rates, across maturities. Revenue grows slower too, at these debt levels, probably favors the debtor. Also increases value of Fed bond holdings. 2.VAT. Introduces revenue, and makes people think twice about what really deserves spending. 3. Gate Social Security for under 75s behind a modest work requirement, that would get the rich ones to give it up and save us some money.
The government needs to spend less. The Roth IRA was invented in 1997 and the HSA was invented in 2003.
Let’s start encouraging each other (myself included) to start investing in these so that we can eventually wean ourselves off the social benefits brought forth by the New Deal in 1938
Don't the billionaires pay almost nothing by taking out loans against their assets while leaving the plastic surgeons, mid executives, and senior programmers to foot the bill because they earn through wages?
Our income tax system is extremely progressive. But yes, income taxes are among the least efficient. So on net, our overall tax system is only slightly more progressive than a flat tax.
Yes, and that is one reason why we are better off not taxing income and instead taxing consumption. A VAT tax would capture the "hedonistic" aspects of that borrowing, like buying yachts, mansions, etc while leaving investment spending intact.
I always remind people of that great Hemingway quote, probably my favorite quote in all of literature.
In the novel “The Sun Also Rises,” Mike Campbell was asked about his money troubles. “How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”
The federal debt is America’s boiling frog. We are almost certain to allow the issue to percolate and build beneath the surface until it is too late.
There are no easy ways out of this problem, but a true long-term solution absolutely must tackle entitlements. There is no mathematical way around it.
The solution for all problems cannot be to “just raise taxes” because there is a limit to how much revenue we can raise. Deadweight loss rises with the square of the tax rate, meaning that a doubling of the tax rate quadruples the economic harm. Eventually, you reach a point where taxes kill the economic engine that drives production.
At Risk & Progress, I’ve dived into this a few times. If we restrain govt spending to around 20 percent of GDP, we can easily raise enough revenue to fund basic government services without triggering a major drag on growth.
The word "debt" appears 14 times (excluding chart titles) in your piece but there is no description of what "debt" or "the national debt" is.
The government first spends then taxes and sells bonds that result from savings. This description clears up any confusion about the government needing an external source of revenue to fund itself. Default and bankruptcy are not applicable to the process of Treasury maturity. Upon maturity, security accounts are debited and reserve accounts are credited. Holders are "payed back" with money the government has already spent.
Businesses mostly borrow only when the return on an investment financed by them has a significant return.
The government is far less prudent. When challenged about the national debt, they often say, “Businesses have debt too.” Or they make up fantasy numbers about how ‘investments’ will pay for themselves.
I heard something interesting from a radio host named Michael Smerconish, whom I had never heard of before today. Something like the swing voters in the US are mostly socially conservative and fiscally liberal. Fiscal and social liberals end up Democrats and fiscal and social conservatives end up Republicans, while there are not nearly so many social liberals/fiscal conservatives as politically engaged Americans believe. This leaves the swing voters of the country looking for the best deal from government - low taxes, high benefits, and normie behavior. Don't know if it's true, but it sure seems like there's not much fiscal conservative left in either party.
I wish I could be more hopeful. Looks like we need less federal spending AND higher taxes, but we really need economic growth too. I just don't think Americans can be convinced to vote for that.
You're totally right that entitlements + interest exceeding revenue is a turning point. It means that we're on a guaranteed path to default without fiscal reforms. There are only two solutions - raise taxes or cut entitlements.
We've been extremely lucky to be confronted with this dilemma just now, compared to the rest of the West that had to decide between these two unpleasant choices much earlier than us. But, uniformly, all countries before us chose to raise taxes rather than cut entitlements. Even though it's objectively the wrong long-term choice, it is politically expedient as it kicks the fiscal problem can down the road while pleasing the most important bloc who votes -- old people. That choice, I think, is one of the most important factors behind the economic stagnation of the entire West, save the US.
Will we make a wiser choice? I hope so but I doubt it, because politicians in the US can't win without retirees either. Anyway, if I had any say in the matter, the first thing I'd do is to means test Medicare benefits based on the size of the beneficiary's tax advantaged retirement accounts (401k/IRAs).
Some good figures in there.
They'll have to move on this soon. The thing to do is 1. tight monetary policy, 3.5% NGDP growth, as a goal to be approached over years. You do that because it tends to push down nominal rates, across maturities. Revenue grows slower too, at these debt levels, probably favors the debtor. Also increases value of Fed bond holdings. 2.VAT. Introduces revenue, and makes people think twice about what really deserves spending. 3. Gate Social Security for under 75s behind a modest work requirement, that would get the rich ones to give it up and save us some money.
The government needs to spend less. The Roth IRA was invented in 1997 and the HSA was invented in 2003.
Let’s start encouraging each other (myself included) to start investing in these so that we can eventually wean ourselves off the social benefits brought forth by the New Deal in 1938
Don't the billionaires pay almost nothing by taking out loans against their assets while leaving the plastic surgeons, mid executives, and senior programmers to foot the bill because they earn through wages?
Our income tax system is extremely progressive. But yes, income taxes are among the least efficient. So on net, our overall tax system is only slightly more progressive than a flat tax.
Yes, and that is one reason why we are better off not taxing income and instead taxing consumption. A VAT tax would capture the "hedonistic" aspects of that borrowing, like buying yachts, mansions, etc while leaving investment spending intact.
I always remind people of that great Hemingway quote, probably my favorite quote in all of literature.
In the novel “The Sun Also Rises,” Mike Campbell was asked about his money troubles. “How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”
The federal debt is America’s boiling frog. We are almost certain to allow the issue to percolate and build beneath the surface until it is too late.
There are no easy ways out of this problem, but a true long-term solution absolutely must tackle entitlements. There is no mathematical way around it.
The solution for all problems cannot be to “just raise taxes” because there is a limit to how much revenue we can raise. Deadweight loss rises with the square of the tax rate, meaning that a doubling of the tax rate quadruples the economic harm. Eventually, you reach a point where taxes kill the economic engine that drives production.
At Risk & Progress, I’ve dived into this a few times. If we restrain govt spending to around 20 percent of GDP, we can easily raise enough revenue to fund basic government services without triggering a major drag on growth.
The word "debt" appears 14 times (excluding chart titles) in your piece but there is no description of what "debt" or "the national debt" is.
The government first spends then taxes and sells bonds that result from savings. This description clears up any confusion about the government needing an external source of revenue to fund itself. Default and bankruptcy are not applicable to the process of Treasury maturity. Upon maturity, security accounts are debited and reserve accounts are credited. Holders are "payed back" with money the government has already spent.
Americans seem bad at managing debt.
Businesses mostly borrow only when the return on an investment financed by them has a significant return.
The government is far less prudent. When challenged about the national debt, they often say, “Businesses have debt too.” Or they make up fantasy numbers about how ‘investments’ will pay for themselves.
We need to cut govt spending on the elderly. No way around it.
I heard something interesting from a radio host named Michael Smerconish, whom I had never heard of before today. Something like the swing voters in the US are mostly socially conservative and fiscally liberal. Fiscal and social liberals end up Democrats and fiscal and social conservatives end up Republicans, while there are not nearly so many social liberals/fiscal conservatives as politically engaged Americans believe. This leaves the swing voters of the country looking for the best deal from government - low taxes, high benefits, and normie behavior. Don't know if it's true, but it sure seems like there's not much fiscal conservative left in either party.
I wish I could be more hopeful. Looks like we need less federal spending AND higher taxes, but we really need economic growth too. I just don't think Americans can be convinced to vote for that.
You're totally right that entitlements + interest exceeding revenue is a turning point. It means that we're on a guaranteed path to default without fiscal reforms. There are only two solutions - raise taxes or cut entitlements.
We've been extremely lucky to be confronted with this dilemma just now, compared to the rest of the West that had to decide between these two unpleasant choices much earlier than us. But, uniformly, all countries before us chose to raise taxes rather than cut entitlements. Even though it's objectively the wrong long-term choice, it is politically expedient as it kicks the fiscal problem can down the road while pleasing the most important bloc who votes -- old people. That choice, I think, is one of the most important factors behind the economic stagnation of the entire West, save the US.
Will we make a wiser choice? I hope so but I doubt it, because politicians in the US can't win without retirees either. Anyway, if I had any say in the matter, the first thing I'd do is to means test Medicare benefits based on the size of the beneficiary's tax advantaged retirement accounts (401k/IRAs).