Also, the US budget was balanced in 2000. It is possible.
I have no idea why so many people refuse to accept that there is a growing problem.
The scam part comes from how the tax cut was marketed to Americans
“Contrary to common perceptions, the CBO data indicate that: (1) income earned after taxes and transfers has increased over the past several decades for all income groups, (2) the federal tax system is progressive and has become more progressive over the past three decades, and (3) the federal system relies heavily on higher earners to raise revenue for government services and means-tested transfers.”
https://www.forbes.com/sites/timworstall/2015/01/08/the-us-t...
I can’t find data before 1980.
Reagan’s tax reform wasn’t a gimmick: it broadened the tax base (to encompass more kinds of income) and lowered rate to keep the effective tax rate basically the same.
The biggest problem is we simply doesn’t tax enough. We want to grow the scope of our government to be more like Europe, but we aren’t willing to tax the middle and upper middle class the way they do in Europe. We had an au pair from Germany. Our effective tax rate in a blue state as a dual income professional couple was the same as she paid at her entry level office job.
You're right that the 86 reform was pretty progressive but with all 3, the rich did great, poor did alright and middle class did poorly, IMO.
What was their effective rate in those years? What percentage of their income are they paying compared to the nonrich, and how did it trend?
Whether you think that's a good thing or a bad thing, it's hard to call it progressive.
Not saying I entirely disagree with it. I just don't think that data is that compelling since it's a pretty shallow analysis of taxation and income of high earners (which is fine, not every article needs to be that deep)
As they paid less everyone else could just be paying more as a total
This time span covers top marginal tax rates from as high as 90% to as low as 35%. The truth here is that we cannot significantly increase tax revenues by raising tax rates, as when taxes get too high, people are simply incentivized to earn less, or to spend more on finding, developing, or exploiting loopholes in the tax code to reduce their taxes. Accordingly, actual economists have understood for the last 50 years that simply raising taxes blindly can counterintuitively decrease overall tax revenue. This effect is part of what's referred to as the Laffer Curve. [2]
But to your first point, that there is no problem, I'd like to point out that interest spending has exceeded defense spending. [3]
But hey, don't take my word for that constituting a problem, take it from Jerome Powell, chair of the U.S. Federal Reserve:
"The U.S. federal government’s on an unsustainable fiscal path. And that just means that the debt is growing faster than the economy. So, it is unsustainable. I don’t think that’s at all controversial." [4]
In summary:
• No, everything is not perfectly fine. The United States is on a fiscally unsustainable path.
• No, the TCJA is not the big proximal contributor to the problem, routine deficit spending resulting in unsustainable debt is.
• No, we can't easily fix the problem by raising taxes on everyone, let alone by only raising them on the rich.
Citations:
[1] https://fred.stlouisfed.org/series/FYFRGDA188S
[2] https://www.investopedia.com/terms/l/laffercurve.asp
[3a] https://fred.stlouisfed.org/series/A091RC1Q027SBEA
[3b] https://fred.stlouisfed.org/series/FDEFX
[4] https://thehill.com/homenews/4447860-powell-the-us-is-on-an-...
None of this stuff is a priori true.
If this is incorrect, please feel free to correct me.
Also, what is your takeaway from this, after discounting the validity of the Laffer Curve, that the US as a whole ought to simply enact dramatic tax hikes, which will solve fiscal stability issues?
That's before we get into the (lack of?) empirical data. I'm finding it hard to come up with any citations that offer an existence proof of a Laffer curve for real, actual public finance systems. The Cato Institute and Brookings have things to say, but they're encumbered by policy goals. Ebrill, also encumbered by policy goals near as I can tell, urges caution. Espanhol's master's thesis concludes that a Laffer curve doesn't exist in its investigation of corporate tax rates across the Eurozone.
So, frankly, I'm keener just to throw out the academics here.
That's also before we get into what debt is and how it works. It isn't a call option: the persons, fictitious and natural, to whom the US government is indebted cannot exercise those debts on a whim in an effort to get paid. They have a maturity schedule. What matters to these creditors (and all creditors more broadly) is that there's faith that their debt instruments will eventually fully mature. For natural persons, that's likely decades from now. For fictitious persons like governments, that could very well be on the order of centuries.
It's for this reason why I also reject the appeal to Jerome Powell's authority: he doesn't express a concrete reason why he expects the faith that those persons, fictious and natural, have in the federal government to erode to the point where default is some notion of imminent. Does he expect the executive branch to stop payments suddenly? Does he expect that the tax base will collapse in the very near future? (Malthusians in particular are fond of crying the latter, predicting widespread famine.)
Furthermore, that's all before we get into taxation and how it works. It's a sticky subject academically, even after you peel away the conflicting policy goals. Is taxation revenue? Is it a constraint on the money supply? Is it economic dead weight? The answer to all of these is, "It really depends." One model says one thing, and another says something else, and there isn't a whole lot of real consensus on which one fits best where. (Economics, it turns out, is one of those social sciences, which means that most experimentation is thorny unless you abandon ethics. When all you have is models...)
The thing that matters at the end of the day is that someone (maybe you!) will cheerfully accept my greenbacks for what I reasonably feel like they're worth, and as long as that remains the case, I'll happily render unto Caesar until we finally find a way to kill him for good.
Gross federal tax revenue never declined, even in the year after the 2017 tax cuts took effect.
https://www.statista.com/statistics/200405/receipts-of-the-u...
It was balanced due to the Internet bubble providing unsustainable revenues coupled with age demographics. The large cohort of the population had hit peak earnings years. The govt revenue as a % of GDP hit all time highs, not because of careful planning and choices, but because of luck and unsustainable timing.
When that bubble popped, and as the cohort in peak earning years shrunk as people aged out of it, so did the revenue, and then the budget became un-balanced again. Certainly the unpaid for Bush Tax cuts have made it worse, but the fall began before Bush even took office, and certainly was well gone by the time Bush passed the tax cuts.
It was not balanced by some stroke of government genius.
I think because this implies change. And over the past couple decades it's become more and more acceptable to simply be against all change. It's political viable to be the guy who doesn't change things, and you can slam other people just by saying "look, he changes things!"
I mean, lately it feels like there's a lot of political will to take a "do nothing and hope it works" approach to everything. It's frustrating.
A mountain of unrealized goodwill. It's such a pity, because indeed much of infrastructure is barely maintained.
Doom is about the future, not the present. Why are you looking at present levels instead of where the trend is taking us in the future?
That's one problem with looking at charts that aren't indexed/real (inflation adjusted) and/or ratios.
On it's face, our debt looks scary.
https://fred.stlouisfed.org/series/GFDEBTN
Looking at it as a ratio, it's still not great, but we've been in similar places in the past.
Debt as a percentage of GDP.
https://fred.stlouisfed.org/series/GFDGDPA188S
Interest as a percentage of GDP.
In 1946 there was a lot of pent-up demand for housing and consumer durables and a young fast-growing population. Now, not so much.
It's also a stretch to call 1990 a similar place for similar reasons.
We really are in a never-before-seen place with our current population age structure (old age dependency ratio) and fertility rates.
Population growth has slowed, but there's a good chance it would increase if affordable housing was available.
We are in a unique place now, and I think we were in 1946 too. I'm not saying everything will be fine, but I don't think it benefits us to say that this is uncharted territory either.
It appears there is no further reasonable headroom for debt should a third world war break out -- the Americans will be up "shit creek without a paddle". In that scenario, roaring inflation would destroy whatever is left of the current economy as globalist trade routes collapse.
The recent wars and posturings of Western rivals (Iran, China, Russia) are no surprise. They are sharks circling what they perceive as a failing economic system in a winner-takes-all game.
I wouldn't characterize what Iran, North Korea, and Russia is doing as sharks circling a failed US economic system.
Russia making a play for control of Ukraine and control of FF/agricultural production/exports, is more about their economic reliance on on FF exports/etc and the West moving towards renewables. The fact that they're willing to throw away so much of their military and population on it shows how much of a threat they think it is.
It could also be because of a perceived threat from NATO, but if that was the case they would have backed off when other countries started taking about joining NATO. Instead they doubled down and NATO is more powerful than it was before.
Iran and North Korea and using their resources to support Russia in exchange for technology/etc.
China is making moves to strengthen their economy during all of this, but I think they're acting as opportunistic towards Russia as they are towards the West.
That's why they're being really heavy handed in negotiations with Russia. They know there isn't anywhere else for Russia to sell a lot of it's gas, and they see this as an opportunity to gain an advantage over Russia.
https://www.reuters.com/business/energy/russia-china-gas-pip...
I don’t think there’s a scenario where you can look at any country with this much debt, break the news, and then have it not sound like gloom and doom.
This just reminds me of the Mel Brooks Robin Hood Movie: “Maybe, if you break the bad news to me, but in a good way, then it won’t sound so bad!”
https://m.youtube.com/watch?v=Mi-YLIwkfJs
“That will probably happen here.”
Can you even conceive of how much inflation this would require, especially at the pace of the debt’s growth? People would be rioting.
I mean not ideal but the 50s and 60s were quite good in the UK.
The US would not have any of those advantages. There's not a more stable dollar alternative to look to, there's not an obvious ludicrous economic boom on the horizon, the export market's probably not growing that much, and US taxes don't have much headway to go up before being counterproductive and stalling growth (if they haven't already been doing so). Stalled growth results in less tax revenue, defeating the point of the tax increase.
In a nutshell, the UK was partially saved by the US and countries rebuilding themselves. The US has no savior.
The CEPR is an EU think tank supported by the French Government [0]
France and Germany have been lobbying against US stimulus packages like the IRA and IIJA, and economic protectionism that has become mainstream politically [1]. It is becoming a trade war [2]
Western European allies can tell the US what to do when they start carrying their weight like Poland, Romania, Czechia, etc.
[0] - https://cepr.org/about
[1] - https://www.politico.eu/article/macron-heads-to-washington-o...
[2] - https://www.institutmontaigne.org/en/expressions/real-reason...
It's absolutely a biased piece of advice because it has subsidized American industrial players at the expense of players across Europe - which is why the EU has been in the process of lobbying against American deficit spending that is primarily being used for subsidizing industrial policy.
Western European austerity has clearly hobbled France and Germany while the US was able to weather the GFC and COVID recsssion by using it's deficit.
> And France isnt in a position anyway to do that, since they have the exact same problem as the US.
Yet they are as Macron's lobbying blitz in 2022-23, the French Govt's Institue Montagaine has pointed out, and the French govt supported CEAP has been lobbying against.
If you want argue that deficit spending is fine and no problem, then just do that. You don't have to sell us on how CEPR is an evil arm of French propaganda.
Of course another level of nuance to that conversation is then asking "and what could happen to break that cycle and what would result"?
This is referring to current debt, not the idea of ending the debt cycle. The US doesn't have the option of letting current debt just sit for an arbitrary amount of time and get reduced by inflation, but has to pay according to the obligations of the outstanding debt securities. It also doesn't buy back the debt securities before they are due. The real value will be reduced due to inflation until the point where obligations are due, but there isn't a choice to arbitrarily let it sit.
By average 2-3% a year inflation or by above-average heightened inflation (which hurts people)?
Additionally, the intergenerational transfer of wealth from Boomers to Millennials and Zoomers will occur over the next 20ish years as Boomers die off. This wealth transfer could be used to increase tax revenues.
One tax that could be raised would be the estate tax, which would be unpopular among the wealthy, but if lowered to 1MM-1.5MM (maybe 10% rate) and over 50MM (50% rate) would help to fill the deficit. The more likely scnario is the government allows higher inflation rates and we have a bag of cheetos costing $10 in <10 years.
The SS trust fund is projected to be depleted by 2033, at which point benefits will be automatically reduced to just 79% of their current level, by laws that are already on the books. This information is freely available from the Social Security Administration themselves. [1]
Keep in mind, Social Security's and Medicare's unfunded future liabilities grossly exceed the current liabilities of these programs.
These defined benefit programs are mathematically reliant on a growing, rather than shrinking population, yet a shrinking population is what the entire industrialized world is currently on track for with our sub-2.1 TFRs.
I'm not stating your assertion is false, but I don't see the connection.
If they weren’t there, or this was 100 years earlier, or Gen Z was fundamentally different than they had been raised to be, then yeah TikTok likely would not exist, or at least not be a notable problem.
Post WW2 was an economic and population boom time. The boomers resulted from that boom, and the programs for them helped them, and that boom continued.
Booms continue to grow until the fundamentals fall apart and the leverage can’t keep it going anymore - and then you get a bust.
The longer and unhinged the boom, usually the longer and unhinged the bust.
And here we are.
Money is now, and will continue to do more so in the immediate future, flow out from the gov’t/taxes/money printer, and into retirees pockets through SS and other means. Up until recently, it had gone from major inflows to mostly neutral on that front.
For the reasons you’re mentioning.
So yeah, either we need to start producing more economic activity - or more likely - just print more money and hope it all works out.
We’re not in as bad a crisis as Japan, but it’s the same kind of problem.
Interestingly, with the US as the worlds reserve currency this is going to have a global effect.
When SS was formed in 1935, average life expectancy at birth was just 60, whereas the full retirement age was 65. In effect, this resulted in close to 150 people paying in for every 1 recipient.
These days, full retirement age is almost done being hiked to 67, while life expectancy at birth was up to 78 the last time I checked. This results in fewer than 3 people paying into the program for every 1 recipient.
If the full retirement age was simply indexed to (life expectancy at birth + 5), that would also solve the fiscal problems with Social Security, though it's a political impossibility.
I think people forget that the actual name of the "Social Security" program that people think of as "retirement" is OASI - Old Age Survivorship Insurance. I use Social Security in quotes because there are other components too, like DI - disability insurance, though that's negligible compared to OASI.
It was never meant be a retirement program, it was meant to be insurance in case you accidentally lived for a lot longer than you were expected to.
Extraordinary claim (less than 1% lived beyond 65)! Any citations?
Note that LEAB of 60 does not imply that fewer than 1% live beyond 65, nor does a payer:payee ratio above 100.
For most of human history, deaths followed a largely bimodal distribution - high infant mortality, lower morality in mid life, and then high mortality (approaching 100%) in old age. Put more simply: if you lived to, say, 3, you were much more likely than a newborn to make it to 70. A large enough portion didn't make it past infancy that it dragged down the entire average.
Much of the improvement in LEAB has been from improvements in infant mortality, not people living longer at the end of their lives (though that is increasingly a factor as medical care is improving).
Part of the discrepancy of the payer:payee ratio was due to more people having more kids, and a big part of that change is explained by our switch from a regular population distribution (many more young people than old people) to an inverted pyramid population distribution, like Japan's (a larger cohort of old people, increasingly smaller cohorts of younger people).
You are entitled to this belief, but I'd be remiss to not remind you that the Social Security Administration itself explicitly disagrees with your hypothesis, here:
"The Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100 percent of total scheduled benefits until 2033, unchanged from last year's report. At that time, the fund's reserves will become depleted and continuing program income will be sufficient to pay 79 percent of scheduled benefits."
Source: Same link as the one in my original post, https://www.ssa.gov/oact/trsum/
> Lawmakers have many options for changes that would reduce or eliminate the long-term financing shortfalls. Taking action sooner rather than later will allow consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.
Fascinating you're compare the US to other developing countries.. and saying it is basically middle of the road as far as developing countries go.