Steve Ballmer: facts on the US federal budget [video]
youtube.com
youtube.com
In this simulation you have to make choices to bring debt to 100% of GDP by 2034. For the most part you learn that discretionary spending is largely irrelevant though has modest room for improvement in military/federal employee benefits, payroll tax rate needs to go up and probably apply to all income, most of the TCJA needs to expire, and Medicare needs to be more efficient. Which all hit politically important constituencies in different ways so nothing will get done. Obama should have done the deal with Boehner and there would have been fewer hard choices to make!
When I have heard discussion of paid leave, it's always been "mandate companies provide it", not "federal government pays a stipend".
In "Build and support affordable housing", it lists a large increase in debt. Does that calculation take into account likely savings for local and state entities and hospitals?
I get it's a federal calculator, but it feels somewhat myopic.
I guess the same could be said by a military hawk, who may assert "Sure, cut spending by $450B in ten years, but World War 3 will cost $10T!"
This vaguely reminds me of that classic "Americans will eventually do the right thing after thoroughly exploring all the alternatives" quote. The issue, at the highest level, is that the political process has agreed how much redistribution needs to happen and how much taxation is reasonable. The two numbers don't match, the situation is impossible to sustain and needs to be renegotiated - either more taxation or less redistributing.
It doesn't really matter if the redistributing is officially handled via the government or forced to happen as a direct payment from taxee to welfare recipient. That is still settling the negotiation by saying that the taxpayers need to pay more.
It is a little less administratively efficient to officially route it through the government but frankly I think that is a better idea. The US political consensus seems to be heading towards "we'll settle this by raising taxes, but we'll do it through payroll, inflation and corporate tax to try and disguise who is paying". That is a lousy strategy that will result in people getting poorer, not understanding why and lashing out randomly because they can sense at some level that they are worse off.
It is massively more efficient at a macro level for the government to handle it, than to make every single employer manage it redundantly and often poorly. The SSA already handles payments to millions of Americans monthly with low operational overhead. Have them send out these and other safety net checks, and if you want to means test it, claw it back from high earners after the fact at tax return time.
Apparently this quote originates from another quote that didn't refer to any specific country.
https://quoteinvestigator.com/2012/11/11/exhaust-alternative...
I fixed the budget by saving $13,350B dollars relative to current law. Debt would be down to 84% of GDP by 2034 and 35% in 2050.
It has a scope, but I think within that scope it offers enough granularity with just actual proposals and laws that were proposed or passed under the last two administrations to give you some clue into what’s possible; which is why I like it because even with that, it is possible to achieve the goal.
Actually it would be neat to make something like that - anyone know where to get very detailed data on distribution of incomes? A quick search and I only see fairly course bins. I think this would need a lot of detail, especially at the high outliers.
> Data from the White House’s Office of Management and Budget show that federal income tax receipts as a percentage of GDP have fluctuated between 5.6 percent and 9.9 percent since 1950, despite dramatic changes in the top marginal income tax rate.
https://checkyourfact.com/2019/01/09/fact-check-90-percent-t...
This article sites Piketty and Saez, "the top 0.01 percent paid an average total federal tax rate of 71.4 percent in 1960 compared to 34.7 percent in 2004".
Okay, 71.4% is not %90, but still pretty high.
We haven't really tried fixing the wealth gap since the Great Depression, so maybe it's time to give it another go.
Confiscating 100% of the ultra wealthy’s wealth would—for any reasonable definition of “ultra wealthy”—perhaps fund the government for a year or two.
Split-adjusted, Amazon IPO’d at $0.075 a share. If instead of raiding my $3 piece of Jeff’s billion, I had the good sense to give him that pittance 25 years ago, it’d be worth $7,400 today.
I don’t know why people don’t apply the same logic to people. The US is a highly competitive economy because of immigrants because it is a nice place to live. If that changes because of declines in living standards, it will be harder for those big companies to attract top talent in the US.
> We haven't really tried fixing the wealth gap since the Great Depression, so maybe it's time to give it another go.
If you look at a graph of the percent of wealth held by the 1%, most of them start in 1979 to show an ever increasing trend. But if you look at a longer graph, you will see a larger U shape over the last century, with a higher peak pre-great depression than today.
No, they don't. There are enough mechanisms in the tax code that many of the ultra wealthy pay nothing close to this, or anything at all. Buffet has famously complained about this.
If you include FICA, it's more like the top 1% of income people pay ~30% of total tax (somewhere around there).
The bottom 50% of Americans own less than 3% of all wealth.
I really think that these figures need to start taking into account disposable income, so we can see just how fucking evil this situation really is. There's over 8 million hungry kids in the wealthiest country on the planet. Half a million families file for bankruptcy every year due to medical debt. Etc.
And people are arguing in all seriousness that we need to tax corporations and the wealthy even less, quoting Thatcher and cherry-picking misleading stats. Ugh.
So if I understood you correctly, yes, the rich pay a higher percentage of taxes if you ignore FICA, because the poor and middle class pay a much higher percentage of FICA.
Pedantically, only the social security part of FICA is capped. Medicare you still pay 1.45-2.35%, uncapped. But the 6.2% for social security is capped, and thus for the top end of the 1% ends up being a miniscule tax.
If you get rid of the social security cap, get rid of mortgage interest deduction, and add a wealth tax, that more or less solves the 2034 debt to <100% of GDP right there.
Also note that FICA is only on "earned income" (not interest, dividends, capital gains, rental income...), and is not subject to the standard deductions.
Of course the other way of looking at it is that fica ultimately just comes out of the pocket of the rich. If there were no payroll taxes, fica would just stay in the employers pockets. Employers are mostly the rich. Or may be it would get embezzled by the middle management due to increased principal agent problem without the payroll tax paper trail…
i.e. the top 1% of tax filers by income paid nearly 50% of all taxes collected.
This is accurate per the latest statistics released by the IRS, for tax year 2021; the top 1% of returns paid 45.78% of all taxes collected.
https://www.irs.gov/statistics/soi-tax-stats-individual-stat...
https://taxfoundation.org/data/all/federal/latest-federal-in...
It's funny. If you had 100 people in a room, there's one guy paying for about 45 people. And the next 4 people are paying for about 5 people each (20 total). And the lowest paid 50 people combined are paying for about 2 people total.
I think we should just not have the bottom half of income earners in the US pay any taxes. It wouldn't change the numbers much, and then it would be one less thing for them to complain about.
However, I don't expect anyone to put down their torches and pitch forks any time soon. It's too easy to use this to get people spun up, even above average educated people as in this forum.
Where does the vast, vast majority of the value of their work go? It goes to the asset class - the top 1 or 2 people.
And you call the top guy generous because he pays ~40% tax on the money the bottom 90% made for him.
Even as he buys politicians, runs monopolies, subsidizes fossil fuel, and strip mines the planet for even more.
Don't make out like the 50% of people making 2 or 3% of income are just ungrateful, or bad at math. The insane level of inequality in America is literally an existential threat to humanity.
They still want access to our consumers, they still want access to the talent our universities produce, they still want the stability our economy provides, they still want to transact with the currency our military backs.
Tell them that if they want access to all that, they can pay their fair share of what it takes to provide all that.
Investors will redirect their funds to friendlier jurisdictions. And entrepreneurs will go there too.
One the reasons European entrepreneurs go to the USA to start startups is exactly because the USA did not try this kind of shenanigans, while their native countries did.
As Margaret Thatcher said: “The problem with socialism is that at some point you run out of other people's money”.
- Margaret Thatcher.
Always odd when people quote Thatcher as if she was some kind of economic genius, rather than the architect of record unemployment, decline in manufacturing, record inequality and homelessness - all of which ought to sound familiar to Americans.
Countries with strong social safety nets, like Scandinavia, have some of the highest standards of living, longest life expectancies, and happiest populations in the world. That's Democratic socialism.
Neoliberalism hasn't "lifted nations out of poverty", it's increased inequality and instability for decades. If you remove China from the stats this is startlingly clear - and China is hardly pure capitalism/a free market.
And meanwhile, the planet is burning, we're losing species at extinction rates not far off asteroid levels, we've put plastic and PFAS into the entire biosphere making even rainwater unsafe to drink, etc.
> Mrs Thatcher was smart enough to recognize that
Thatcher increased poverty, unemployment, and inequality. Saying otherwise requires incredible delusion.
Which country exactly? Oil-rich Norway has about 5 million people and is basically a democratic Saudi Arabia. Sweden has more billionaires per capita than the USA - quite far from the egalitarian society socialists dream about. And they all have strong capitalist economies, with multinational corporations and such.
> China
China enjoyed unprecedented growth when they decided to allow capitalism and free markets. Conversely that growth slowed and problems starting to appear when scared of the entrepreneurs success, Xi decided to reign them in.
Other A/B tests abound: Venezuela, North Korea, Cuba, etc. My favorite is where I live, Eastern Europe. We were starving until we got rid of our socialist economies in the 90s and how we enjoy what is basically a luxury lifestyle: flights, cars, iPhones, city breaks and vacations in Greece.
> planet is burning
Do you think communist countries cared about the environment? They polluted even more. Read up on the Aral sea sometimes. Mao killed all the sparrows to such an extent they had to import new ones. Caring about nature is a luxury only rich people can afford. And only under capitalism people are allowed to create value and enrich themselves.
Who owns the oil Nick?
> Sweden has more billionaires per capita than the USA - quite far from the egalitarian society socialists dream about.
Sweden is regarded as one of the most egalitarian societies in the world.
> China enjoyed unprecedented growth when they decided to allow capitalism and free markets
Did the government retain significant control of the economy during that time?
> Other A/B tests abound: Venezuela, North Korea, Cuba, etc.
All countries which have been the victim of horrific sanctions and interference by the US, lest they prove that socialism can actually work.
> Caring about nature is a luxury only rich people can afford. And only under capitalism people are allowed to create value and enrich themselves.
Lol, some people really just buy anything.. This is tiresome. Believe what you like.
I actually lived under both systems so at least I can speak from my experience. I learned on my own skin which one I'd "buy". I am willing to bet you've never lived in any of those socialist paradises you admire. Give it a try please and then come back and give us economy lessons.
The fact is that lower tax rates actually result in higher tax revenue. https://taxfoundation.org/research/all/federal/benefits-of-a...
Look at Apple paying an effective 1% tax rate on all European profits, just because some sneaky bois in Ireland decided that would be 'good for the economy'.
Was it good for Ireland? A little, though our reputation has suffered.
Was it good for Irish politicians? Have no doubt.
Was it good for Europe? Fuck no.
Was it good? Fuck no.
Folks seriously believe having one of the highest corporate tax rates in the world will have a positive effect are dreaming. Don't strawman with Ireland.
The world has seen tax rates lowered in a race to the bottom.
> Putting it back to 35% would put us as top 5 in the world.
See above.
> We have the data. This is a settled point. Tax revenue goes down and entire industries die and move away.
First off, no. Empirical evidence on the impact of lowering corporate tax rates shows mixed results. Implementation is key.
We've been in a well documented race to the bottom for about 50 years. We've been ignoring potential solutions like capital controls, sabotaging tax harmonization and international cooperation, and taking away the ability of the IRS to chase big fish.
American industry died because corporations chose to move their manufacturing to the places that were most willing to exploit their workers, with the backing of the same corporate-sponsored politicians cutting tax rates.
'The problem with neoliberalism is that sooner or later you run out of public goods to strip mine for temporary profits.'
> Folks seriously believe having one of the highest corporate tax rates in the world will have a positive effect are dreaming.
From 1952 to 1963 the corporate tax rate in the US was 52%, with the highest tax band set at 91%. The period and the years afterward were characterized by massive growth and decreases in inequality.
You could call it the heyday of the American Dream, when upward mobility was at a peak.
> Don't strawman with Ireland.
Ireland illustrates the point perfectly. Apple moved there so they could pay <1% tax across all Europe in a secretive sweetheart deal, and Ireland didn't even benefit all that much. Tax harmonization put an end to it. All very relevant and not at all straw, unless you're coming in with a hard bias...
It really depends how good the forecasts on a wealth tax will be. After all, that stuff is based on inflated asset values that are unusual compared to the rest of the world.
If you believe that our medical spending is unusual here, then you should also believe that our asset values are unusual. You can't pick and choose what is unusual, if all you're doing is comparing to the rest of the world.
Without that wealth tax, does it make sense to limit the mission of many of these programs? For example, the military has a constantly expanding mission, and much of that mission is domestic welfare, do we want to cap that?
Overall it is very enlightening. You will never be the CEO of a giant corporation, and you are basically never the beneficiary of its wealth. You don't need to give a big tax handout to Apple and Google. Seems easy to deal with.
Personally I would have benefited from less "moving flashy graphs" / "Steve explaining each node in moderate detail", and more "Here's one clean boring way to look at the data", "here's what X means for us / here's what people are considering because of X."
That said I respect what's being done and hope he continues to produce more informational content!
I’m occasionally having to correct people who believe and are insistent that our largest ticket spending item is the Military. It’s certainly the largest part of our discretionary budget, but if you’re going to talk about the Federal budget, it is unhelpful to disregard the non-discretionary budget that goes mostly into Social Security, Medicare and Medicaid and giving people an education on discretionary vs non-discretionary spending drags out conversations; then it’s a coin toss if that person retains any of that the next time you talk politics, or if it got muddled up in their minds by poor news reporting in-between, the news they follow to “stay informed”.
When I see folks habitually complaining about how much the US spend on their military, and then I look at the actual budget and see that they are actually spending more to service their debt than they do on the military, I wonder what the end game is.
My entire comment above was to argue that "resolving" the debt is nonsensical. The answer to when the debt needs to be paid off is: never. The government can issue more debt indefinitely. In fact, "paying off the debt" implies the government would stop selling treasuries, which is entirely more scary than the debt.
> I wonder what the end game is.
There is no end game, ideally, the US wants the US to continue to exist, and continue to fund the things that improve conditions for their citizens.
Believe it or not, the single largest holder of US government debt is... the US government itself. And 77.1% of the entire debt is owed to domestic US entities. The US debt is mostly Americans voluntarily financing their own government. This situation isn't something to "resolve", it is entirely okay.
Debt to GDP does need to be within some reasonable bounds, but as long as our economy can support the debt, there's no reason to get rid of it, and many reasons not to.
Then why do governments place a large importance on minimizing deficit?
This isn't a rhetorical question, I'm ignorant about economics and government mechanisms.
> Debt to GDP does need to be within some reasonable bounds, but as long as our economy can support the debt, there's no reason to get rid of it, and many reasons not to.
What is reasonable and why? What does it mean to support a debt, and why wouldn't that burden be a reason to get rid of it?
What would out of control mean, and why? What are these problems? I struggle to understand what exactly it is that is entirely not a problem until this difficult to define point where it can become a problem, and what that problem is.
Now, if this were to change, and financial markets thought that buying US treasuries might not be a guarantee that they can get that money back later, a lot of things would be disrupted. In the immediate term, interest rates would likely increase significantly for everything, as many interest models base their rates on treasury interest rates, and treasury interest rates would skyrocket due to the now non-zero risk. That would in turn mean that the US's interest on their outstanding debt would skyrocket, further compounding the issue. Also, because so much of the world economy is based on the assumption that US treasuries are zero risk, this would upend investor confidence in many other financial markets globally that rely on those instruments for their function. Those who were forking over trillions to the US for safekeeping may look for other places to keep their money instead. This would be bad for the US governments ability to raise money to do the things it needs to do, in likely a significant way. And if a default does happen, creditors could seize assets, and depending on who is stuck holding the bag, war has happened in these situations before, although the UN currently disallows it.
But at a minimum, the global economy would be hit very hard.
There are! One of the most productive uses of buying your own treasuries is the ability to manipulate the entire economy as a whole.
Personally I think we should raise taxes, particularly close a lot of loopholes and raise corporate taxes as a first thing to do.
You might then say that this is due to inflation, but that inflation almost certainly has something to do with lack of confidence in the dollar.
To put it another way: America can afford to spend more than its revenue because people (Americans and otherwise, see the bond market) and countries (see prior) are (still) willing to lend more and more money. So what happens when that gravy train finally stops?
Note that it is easy to default on our debts, most prominently by just not passing a budget to pay our debts. How we are going to pay all this debt off is a very real question that needs an answer eventually. Brushing it off as "we aren't a household budget" is peak denialism.
If a household had an undefined credit limit and could take out debt to pay for any other debt, arbitrarily, and indefinitely, they'd be dumb to ever work a day in their life. But consumer creditors understand that their customers have essentially zero global power and will die someday, so the world of consumer debt doesn't work that way.
> So what happens when that gravy train finally stops?
You tell me, when is everyone in the world going to stop buying treasuries? I don't think there is a date. As long as the US has a stable and powerful economy, people with money will want somewhere to put it.
> How we are going to pay all this debt off is a very real question that needs an answer eventually.
The literal answer is that it all gets paid off all the time, according to the payment schedule of each individual security, but we continually reissue debt because there is literally zero reason not to.
Yes, but I laid out how national budgets and household budgets are fundamentally the same thing: The flow of cash coming in must meet or exceed the flow of cashing going out. I'm surprised this detail is completely lost on you.
>I don't think there is a date. As long as the US has a stable and powerful economy, people with money will want somewhere to put it.
That's the thing, isn't it? It's not an absolute guarantee that the US will continue to have a stable and powerful economy ("past performance is not a guarantee of future results", as any good investor will tell you). Lest we forget, US credit ratings were lowered following one of the many recent shutdowns we had, and the world at-large is slowly but certainly shifting from Pax Americana to Pax Sino.
So again, what happens when the gravy train stops? We don't know when that is, we don't know if the train will stop in the first place, but we have to have a plan in hand because debts must be paid.
>The literal answer is that it all gets paid off all the time, according to the payment schedule of each individual security, but we continually reissue debt because there is literally zero reason not to.
Yes, the issue is where do we draw the line between reasonable amounts of debt incurred and unreasonable? Spending more money than we make is fiscal irresponsibility, borrowing money to make up for the shortfall is merely a workaround and borrowing money to pay back borrowed money is disturbing.
Where do we consider we are borrowing too much? This line can and should be constantly reevaluated as necessary and appropriate, but first of all do we even have such a line? I don't think we do, which is why the national deficit is such a hot topic.
That's absolutely not true. Governments can manipulate the supply of money they have available to themselves in numerous ways. The most obvious counter-example is that governments can simply print physical cash. It is rarely a good idea, but it absolutely a thing that can and has been done.
> the world at-large is slowly but certainly shifting from Pax Americana to Pax Sino.
> So again, what happens when the gravy train stops? We don't know when that is, we don't know if the train will stop in the first place, but we have to have a plan in hand because debts must be paid.
If it goes at the pace it has been going, it'll be a continuous squeeze instead of "stopping". What would happen in that squeeze? Interest rates and taxes will slowly go up and the economy will stagnate.
> Where do we consider we are borrowing too much? This line can and should be constantly reevaluated as necessary and appropriate, but first of all do we even have such a line?
Not really, because lender confidence is more complicated than a number as simple as debt-to-GDP, but it's a good benchmark value. I think the obvious answer is that lenders will indicate with their buying habits when they disapprove of the debt, and that's really the indicator that ultimately matters. But it's a complicated question that economists don't even agree on.
That's still addressing the question of cash flow: Making the cash coming in meet or exceed the cash going out by printing more cash to go out.
The various means to effect cash flow might be different, but national and household budgets are fundamentally the same.
>What would happen in that squeeze? Interest rates and taxes will slowly go up and the economy will stagnate.
Yes, are we prepared? I don't think so. Also, we can probably do something about that to reverse course or at the very least dampen the grief. Are we doing something, though? Again, I don't think so.
>I think the obvious answer is that lenders will indicate with their buying habits when they disapprove of the debt,
In the interests of pre-emptive preventative measures, because those are always cheaper and easier than cleaning the room after the shit has hit the fan, are we doing something better than doing nothing?
Surely, the government should just debt-finance everything and then we would all be happier.
I would have assumed that if that was your only metric, that the US at 122% would be far past your acceptable line.
However, Japan is now over 200% has been over 100% for 23 years. Despite their debt, investors aren't too worried about not getting paid.
There's not really a hard and fast rule at which it becomes a problem, it is up to investors to decide. The total economic situation, monetary policy, and geopolitical situation will matter more than just the debt-to-GDP ratio. That ratio is mostly useful for comparing a country to itself over time.
US bonds are not currently in the same place because it's hard to figure out who is in a much better position. The US has the guns and the petrodollar (although that is ending), and many other countries are in a more precarious economic and political position (thanks to Russia). However, there is no question that position would be better if the US had half its national debt.
In fact a debt-to-GDP of 12 months or 14 months has no more special significance than the debt reaching 50 trillion dollars or your car reaching 100,000 miles.
If a government imposes austerity measures during a recession, it can make the recession a lot worse, because that government spending was used directly or indirectly on goods and services, creating economic activity.
I learned more than I was expecting from this.
That said, I think these videos do a decent high level overview and have led me to search for more information, especially on immigration. I think this project is most effective when used as a starting point for further research.