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Comment by alphazard | Hacker News Reader

> either increase taxes or reduce spending

I see this sentiment a lot, they are not equivalent. The US must reduce spending, if it wants to protect the dollar. Tax increases may also help.

The relationship between tax rates, GDP, government revenue, the market value of new US debt, and the value of the dollar, is complicated and depends on uncertain estimates and models of the economy. Increasing taxes can reduce GDP, which needs to increase to outgrow the debt, there is an optimal tax rate, more doesn't always help. Decreasing spending is a more straightforward relationship, no new debt, no new dollars.

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If the US reduces the debt, it removes pressure to monetize and removes market expectation that we will monetize, which directly boosts the dollar. I also think that "rich people are scamming us" is a politically more advantageous message than "old people are scamming us".

The most important thing is eliminating the annual deficit. That sends more of a signal about the future of the country and it's currency than the total amount of debt.

How it gets done is separate from that. Given that the only demographic that can comfortably weather a recession is also starting to collect social security, paid for by younger generations who would be meaningfully affected by a recession, "old people are scamming us" may actually be an effective message.

Social Security is not really relevant to the deficit, that's just a thing some politicians say because they want to dismantle the pie to take their piece. Every time someone points to SS as the source of our fiscal woes, we should be immediately skeptical.

I assume they just want to redirect the required payroll taxes into the stock market via privatization. Currently it goes into the trust fund which buys U.S. treasuries.

https://www.ssa.gov/OACT/ProgData/assets.html

Social Security is 22% of the budget, how is that not relevant to the deficit? It's the largest single category of spending, and spending more than the government takes in is the source of the deficit.

https://fiscaldata.treasury.gov/americas-finance-guide/feder...

Because it's not real spending, because the money was already put aside. We take more in SS taxes than we pay out - it's a net positive.

It's sort of like looking at the IRS and saying "look how much it costs!"

Payroll taxes are supposed to cover Medicare and Social Security (along with some other programs), but they cover less than 2/3 of those costs. It’s not true that “the money was already put aside”, because retirees these days are getting about triple what they put in, and the ‘pot of money’ saved up to cover Social Security ‘promises’ is forecast to run out. There is an infinite number of ways to juggle the numbers, but the government is spending a lot of money on 'non-discretionary' programs, and revenues are not high enough to support everything.

it's not worth arguing with someone who has bought into the SS budgeting fiction, imo. essentially all economists agree with you

SS doesn't come out of the general budget, I don't know what to tell you. If you dissolve SS you don't get any money. SS is not being paid out from general budget. That spending has literally nothing to do with the deficit.

People have been saying that SS will run out since the 70s, at least. I've heard it all.

> Tax increases may also help.

I don't live in a costal state, but when I do consulting work typically at charity rates alongside my standard full-time job, I have to pay 24% federal tax, 15.3% FICA, and 7.85% state tax. I am already taxed whenever I want to help anyone at 47.15%. That's before the required tax structures and consulting for doing all the invoicing legally. God himself only wanted 10%, so it seems a government playing God is awfully expensive.

You can't raise taxes any further before I'm done, and I don't think I'm alone, businesses and consultants are already crushed in taxes. I have to bill $40K to hopefully take home $20K; at which point, is it even worth my time? But if I don't consult because it isn't worth it, are small businesses suddenly going to afford an agency or a dedicated software developer? Of course not, so their growth is handicapped, and I wonder what the effects of that tax-wise are.

You're talking about your marginal rate and we simply are far to the left on the laffer curve, raising taxes will raise revenue. I'm not unsympathetic, my marginal is close to the same - but generally I think people's claims that they will stop working are generally more bark than bite and the evidence largely backs that up.

If you don't want a tax-based solution, I do hope you are agitating for SS and medicare cuts.

> we simply are far to the left on the laffer curve, raising taxes will raise revenue

I don't believe this, actually. I think that we will raise more revenue, yes, by squeezing more from the Fortune 500; but you will absolutely crush small business and consultancy work further. It's kind of like how an 80% tax rate on everyone making over $100K would do a fantastic job of raising revenue, but it's fundamentally stupid and would kill all future golden geese.

(On that note, I see this comment a lot about how we had huge tax rates, 91% in the 1950s; but this is misleading. The effective tax rate for those earners was only 41%, due to the sheer number of exemptions, according to modern analysis. We have never had an actual effective 91% tax rate, or anywhere close to it. Those rates were theater, never reality.)

pretty much all modern economists disagree with you https://kentclarkcenter.org/surveys/laffer-curve/

... in 2012?

are effective tax rates higher or lower than in 2012?

Well, if we include property tax, sales tax, SALT deduction cap changes, compliance costs, regulatory burdens, state and local taxes... higher.

On that note, you have no evidence that economists focus solely on tax rates on the curve independently of the economy at large. By definition, the curve is determined from external factors and economic measurements, none of which currently resemble 2012. If the economy crashed and there was 20% unemployment, do you still think they'd stand behind the same curve?

okay, believe what you want. i just hope you are pushing for SS+medicare cuts

Just a reminder that professional macro-economists are paid to justify political decisions. That's the job. Find data that can arguably make this policy (made for other reasons) make sense to the voters, who have a much worse understanding of economics.

As always, the question with economists is "why aren't you rich?". You would get much better answers about macro-economic counterfactuals by going to a macro-trading firm like Bridgewater and asking the employees "what do you think would happen if..."

putting aside the fact that that is not really true about bias in the economics profession, I have good friends who are ex-Bridgewater who would agree with me... and listen to what Ray Dalio says about our fiscal trajectory.

>I think people's claims that they will stop working are generally more bark than bite

They stop paying taxes and work off the books instead but you don't announce that publicly for obvious reasons.

The incentive to do this increases with tax pressure. The willingness of people to pay for tax-free work equally increases because you'll pay less.

There's also an increasing asymmetry of what the government gains from a tax hike versus how oppressive it becomes that becomes unfavorable as tax rates go up.

okay, i hope you are pushing for social security and medicare cuts then. hard choices are hard for a reason.

The type of people who will work off book to avoid 50% taxes will generally also work off book to avoid 25% taxes, so increasing the tax rate does not have a large effect on the hidden economy ratio.

It sort of depends on how much time you are putting in when you bill $40k, no?

You say you consult at charity rates and then point to taxation as the sole reason it isn't worth your time...

If you're at a 24% marginal rate then you're at least approaching the point you stop paying Social Security taxes. Sounds like you just need to work a little more to keep 12% more of your money. It's funny how making more money reduces your tax rate. You just don't make enough to benefit.

If they're married and paying 24% federal tax rate on any of their income, they almost certainly aren't paying any social security taxes on their consulting income. That would mean their adjusted gross income is in the $200-400k range for their full-time day job which exceeds the Social Security cap by a good margin, it's $176k.

They'd still have to pay for Medicare, but it knocks 12.4% off their estimated taxes for consulting.

If they're single, then the math is different. 24% for single people starts at just over $100k and runs to about $200k so they may have to pay those taxes. It's always frustrating when people whine about taxes but giving insufficient information to evaluate their complaint.

Also, FICA cap goes off gross and a 24% rate is based off AGI, just to muddle the numbers even more.

>> God himself only wanted 10%

Wanted 10% but offered nothing real in return. At least you get some services from your taxes, like unlawful detention/extradition of suspicious people.

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