There's no solution that doesn't involve cuts, and lots of them. That's not a political statement, at least to me it isn't... it's a math statement. We have obligations in excess of what we could possibly pay down even if we hypothesize a 100% tax that somehow magically draws from a perfectly healthy economy while its happening. The only questions are who gets them, how we do them, and when we do them. Failure to do them at all means we choose the default choice of economic collapse, at which point obligations will still not be paid. There's no solution where we simply honor all of our current "obligations".
(And I would point out that I can't emphasize this point enough. If we do nothing, the default answer is still that we default on everything when the economy collapses. If you value Medicare, Social Security, and everything else, truly value it and not just valuing it the way politicians do as a vote-buying mechanism, you ought to be leading the charge to turn them into something managable, because the worst case scenario doesn't come from Evil Repulicans, it comes from economic collapse. The "evil Republicans" are the only ones taking actions that may mean that Social Security still exists for anyone in 2050.)
Well, there is, technically, which is that some amazing breakthrough in technology suddenly makes us all a lot wealthier very quickly, which is such a long shot it's hardly worth talking about. (And still not worth planning for; should we become radically wealthier we can work out ways to use it when we have it.)
And even were that proven (or at least were that to be slightly persuasive), there's still substantial arguing yet to be done, to argue that a refusal to raise taxes at all is an action in _favour_ of coping with debt (indeed, allegedly the only such action).
"Health spending will rise by 5.8% each year from 2010 to the end of 2020, according to actuaries at the Centres for Medicare and Medicaid Services (CMS). In 2020 health care will account for one-fifth of America’s economy."
The article goes on to point out that surveys suggest that the Federal government will be liable for a huge amount of medical obligations... and all this will occur in the country which has the most expensive healthcare in the world.
Something has to break.
The number of new drugs intering the market is decreasing, and once the patent expires on an existing drug most drugs effectivly become free.
Most importantly we spend twice as much of our GDP on heathcare as most contires with universal heathcare for reduced benifits. If the numbers keep getting worse the government can get involved in the supply side of the equation without reducing benifits to patents.
If the reason for the S&P downgrade was based on the debt, it would be purely political, because along with US treasuries, every security denominated in dollars would have to be equally downgraded simultaneously to make economic sense. They understand this, so this is not the reason they gave - they graded the US on its willingness to pay its debts. I think that's a vast overestimation of the power of unpopular spoiler Republicans (edit: and anti-Chinese xenophobia), but a case can be made.
But, even with the fiscal shape of the US now, investors are buying treasuries with interest rates at historic lows, because if you're not investing in US treasuries, what are you going to invest in? The property bubble was largely a response to super low treasury rates, and since it has burst, there has been a massive run-up in precious metals as a way to store savings and get a rate that beats inflation. Investors (the only people that have to be answered to in questions of government debt) make their evaluation of US debt available in real time, and the evaluation is excellent, no matter what any individual investors/pundits say with their mouths.
The worst outcome of more money printing is that those interest rates start to rise, making the dollar less valuable with respect to other currencies, which will make imported products more expensive for domestic consumers, and make our exports cheaper abroad, stimulating a rise in domestic manufacturing and employment. If in addition, that newly printed money was used to make investments in infrastructure, or simply handed to people with low to negative savings who will immediately spend it, the domestic inflationary effect would be captured by a rise in domestic wages. To the degree that all of this happens is the degree to which the massive trade deficits we've been running since Reagan decline or reverse, and the national debt (the combination of domestic public and private debt) is an accumulation of those deficits.
(And I would point out that I can't emphasize this point enough: If we do nothing to Social Security, it will be able to pay exactly as it has until 2035, and if no fixes have been made until then, 80% of what it has been paying until the earth plunges into the sun. This 80% will go further than the 100% being paid now due to the productivity gains between now and then, unless our response to the underutilized economy of this demand crisis is to make cuts that further underutilize the economy.)
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edit: that's what I get for not RTFA before commenting. I gave S&P a benefit of the doubt that it didn't deserve, and most of this was actually said by the treasury except for the "weak dollar is good and SS is fine" stuff. Well, a weakened dollar is good and SS is fine:)
You could fund my mortgage. I pay 7% floating in a currency with a pretty good record of late. My property could halve in value and you would still get your money back, and I can fund the the loan from my current income.
I also can't just decide to not pay you without you being able to foreclose.
Who is proposing that we only raise taxes, without cuts? The entire Democratic 'compromise' is effectively all cuts.
> The "evil Republicans" are the only ones taking actions that may mean that Social Security still exists for anyone in 2050.
The "evil Republicans" hyperbole might be helpful in dismissing the fact that both parties are horribly complicit in the problem we have now. Neither one of them have done anything meaningful to cut budgets for any of their favorite projects. And that hyperbole ignores the fact that there is a significant percentage of Americans that do not identify with either party [1], and as such are not blaming the 'evil Republicans'.
1 - http://www.rasmussenreports.com/public_content/politics/mood...
http://www.economist.com/blogs/democracyinamerica/2011/08/de...
Those democrats, how could they agree to such harsh cuts!
(The media is describing it as a "cut" because the growth rate of government spending has been cut.)
http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&#...
PS: If growth avergages less than 1.6% for the next 9 years we are going to have an issue. But, a few of those 5+% years and things start to look vary diffrent. Except for SS which recives little benifit from GDP growth only population growth.
Growing with population or inflation makes sense, at least for costs which scale with population. Growing with gdp is nonsensical.
When you break it down short term GDP growth is dominated by the size of the working population and changes in the value of your currency. Over the long term you need to consider technology and infrastructure improvements but wealthy society’s both expect more from the government and can afford to have their government provide more so that's not really an issue. Thus linking government spending to GDP is fairly healthy activity.
PS: I would happily to drastically cut a lot of government spending, but I also realize doing so quickly would be vary damaging to our economy. I think a flat 25% federal tax including social security that starts at 70 and universal healthcare and excluding any and all tax breaks would be close to optimal, but good luck getting that passed.
My buddy in Singapore pays about 8% all told and he's in the same income range.
The temptation to become an expat gets stronger as I earn more money.
My sin is not being a fat cat living off capital gains. I have to actually earn my income, so I get fucked.
You don't need a car there, it's a petty way to show off. Taxis are absurdly cheap in Singapore. gothere.sg is a great site for getting places too.
Renting or buying property is the expensive part of living in Singapore. However, it is quite inexpensive to get a live-in maid/nanny.
For example, if you make $100k and take only the standard deduction, you'll pay $19k in federal taxes (19%) and $6k in California taxes (6%), for 25% total. If you include payroll taxes, that's another ~7.5%, so 32.5%. Of course, many people take much larger deductions than the standard deduction, so pay considerably less.
>[1] http://taxes.about.com/od/income/a/Self-Employment-Income.ht...
The reason why he thinks his tax rate is 40% is because he's making the mistake that common among financial illiterates, which is confusing the maximum tax rate with the marginal (i.e., actual) tax rate.
The highest Federal tax rate is currently 35%. That bracket applies to people who earn $379,150 or more. But if you earn $379,151, that means that only one of the many dollars you earned is actually taxed at the 35% rate.
Similarly, the highest California tax bracket is currently 11%, for people who earn a million bucks a year or more. But again, only the income that's above $1 million is taxed at that rate. Your first $47,000 in income is going to be taxed at the rate of 0 percent to 10 percent.
And that doesn't even factor in deductions. So even if your income is a million bucks a year, it doesn't mean that your combined state and federal tax rate is 40%.
Edit: should clarify I prepare taxes among other things. I'm NOT saying the brackets aren't progressive, just that this guy isn't saying, "gee, if only we progressed up to 35% things would be fine."
Of course, we're about to learn the consequences of that as we slowly decimate our educational system and national infrastructure, but that's probably a separate discussion.
Not sure how exactly one would calculate this, though, other than looking at taxes as percentage of GDP and maybe trying to fit yourself in there somehow based on your tax bracket as a ratio to other people. But with an average total tax burden of 26.9% (http://en.wikipedia.org/wiki/List_of_countries_by_tax_revenu...), 40% for someone in an upper bracket doesn't sound so crazy.
Here in Norway an income tax bracket of 50% for a well-off middle class family is fairly normal. On top of that, sales tax is 25%, gas is mostly made of taxes (about 2.5 times what you'd pay in the US) etc.
Still somehow there's less bitching about taxes (or gas price) per capita than you hear from overseas :)
The best way to deal with bureaucrats here is to catch them making a mistake and then using that to make them sign the papers. (Usually this involves following their orders until there is some kind of incoherence in them, and thus is costly if those orders involve eg. building/renovating something that is fine as is).
For some reason the favorite explanation nowdays is that the EU is in fault here, even though this crap has been going on before the EU existed.
The other issue, of course, is that many people don't seem to realize that they benefit from the taxes they pay - a classic example being the tax credit for owning a home.