America will come to regret its war on taxes
economist.com
economist.com
In such a system, it is rational to cut taxes as much as possible and instead rely on borrowing and monetization of debt. It allows America to limit the load on its own citizens, who in turn enjoy "exorbitant privilege" in the colloquial rather than economic sense, and then have the costs spread amongst the billions of people who don't live here. Privatize the gains, socialize the losses.
The flip side is that if the U.S. dollar ever loses its reserve currency status, that is literally the end of the United States. It will no longer have the ability to fund the government, which is fed by debt that is largely snapped up by foreigners who need a place to park the dollars that move abroad from the persistent trade deficits needed to sustain reserve currency status. It will also no longer have a citizenry or economy capable of doing anything other than moving capital (finance) and jobs (tech) around in the global economy, since in the current reserve currency economy, those are the only sectors that are profitable to go into. If it happens, expect basically a collapse of society and multi-sided civil war.
This is a popular and tearful story of privilege but it's untrue today. In order for the "privilege" to exist, the foreign holdings of US debt must increase every year by amounts equal to the yearly US shortfalls... however, since around 2015, foreign holdings of US debt have been falling to flat. Nowadays, not only there isn't any "exorbitant" privilege, there isn't any privilege at all.
The shortfalls are funded by the US population at large via internal debt and inflation.
There's a slight uptick of foreign holdings this year due to instability but any public benefit from that is dwarfed by the losses caused by inflation and tariffs.
The yearly data for foreign holdings of US debt are easily found online.
But the dollar is used for 60-80% of international trade [2]. Many dollars don't stay in the U.S. to be transacted among the locals; they go abroad, and are held as foreign currency reserves or transacted between other nations for international trade. Under these conditions, the relevant Q in the money supply equation is the value of international trade denominated in dollars, which has been growing close to the increase in money supply. The dollars are getting soaked up for international transactions, preventing severe inflation at home.
I'm trying to model out what happens if the volume of dollar-denominated international trade declines, which seems to be the situation we're entering now and is the stated policy of the Trump administration. Certainly one consequence is that the stock market would crash by ~70-80%, which is the component of major S&P 500 companies earnings that are earned abroad. I suspect that this would trigger major chaotic effects (like WW3 or a revolution in the U.S.), that make future economic predictions irrelevant.
[1] https://fred.stlouisfed.org/graph/fredgraph.png?g=1UTPn&heig...
[2] https://www.brookings.edu/articles/the-changing-role-of-the-...
https://www.slickcharts.com/sp500
Going down that list, the first 9 are all tech (the "Mag 7" plus Broadcom). The first non-tech is Berkshire Hathaway at #10, but that is financial services. The top 10 together are 38.63% of the index. Then you have Walmart at #11 and 1.57% of the index, then 2 financials (JP Morgan Chase and Visa) and a pharmaceutical (Eli Lilly). The rest of the top 30 includes 6 more tech companies (Micron, Oracle, AMD, Netflix, Palantir, and Intel) and 2 more financials (Mastercard and Bank of America).
https://www.tradingview.com/markets/stocks-usa/market-movers...
It is even more dominated by finance and tech: the list is Alphabet, NVidia, Apple, Microsoft, Amazon, Berkshire, Meta, JP Morgan Chase, Bank of America, and then the first non finance/tech comes in at #10 with Exxon. Exxon's earnings are less than 1/4 of Alphabet's.
The reason to prefer market cap over earnings is that market cap includes investors' view of the company's future earnings power, but they both tell the same story.
Earlier in my adulthood, I would happily vote for almost any tax or levy, because I had faith that that money was turning directly into societal good.
I have lost that faith. In the worst case, money seems to be grossly mismanaged (here is a local example from just last month: https://www.seattletimes.com/seattle-news/politics/fallout-f...).
In other cases, it is going to real nonprofits that are tasked with solving problems that never seem to get better, no matter how much money is spent.
In yet other cases, the money goes to building transit (something else I was previously very bullish on), but that, once built, seems to be governed by principles of limitless permissiveness (an example from a few days ago: https://komonews.com/news/local/only-8-metro-fare-enforcemen...)
It's hard to feel invested in the programs that my taxes pay for when it doesn't feel like they reflect my values.
And California, where I lived ten years, is even worse now.
Ezra Klein https://music.youtube.com/watch?v=mX5U5DNUfBc&si=4XEYfEl6lbW...
https://freakonomics.com/podcast-tag/jessica-riedl/
and other work / appearances by Riedl
Now the math doesn’t work with a federal fund rate of 4-5%. And now as our debt rolls over it gets refinanced at the higher rates. Debt servicing is roughly 20% of the government budget and will soon be 25-35% in ~10 years assuming we don’t further accelerate deficit spending (which seems unlikely).
US govt needs to cut dramatically to avoid this and the otherwise likely “solution” otherwise is inflation to make the debt effectively less expensive which also raises interest rates.
We can’t tax our way out of this. Only 60% of US households earn enough to pay federal income tax. The top 1% of earners already pay roughly half of all tax revenue, top 10% is roughly 75%. Furthermore, there is profligate waste in government, inefficiency, no matter where the taxes came from even if we could materialize them.
The government needs to shrink dramatically. This type of change is best done gradually but immediately to avoid later shocks (eg: Medicare suddenly disappears)
Weird, they were historically low because the money printers went brr. So the "We" you're talking about is both Republicans and Democrats, and not much else.
So basically, the interest rate is meaningless, so everything that follows is probably just as meanginless.
>The government needs to shrink
Just because the government makes bad choices doesnt mean whatever fills the vacuum with make good choices.
Governments that consistently make bad choices eventually die one way or the other.
Most (but not all) other developed countries have both a larger government and a smaller deficit per capita. A smaller government is not the only solution.
Then every dollar you earn goes to the government until May 1.
In this scenario if you have to pay govt interest expense first then almost every dollar earned in January would go to paying the debt.
We are spending almost an entire month of everyone’s salary, not on providing anything of value but merely on paying for previous overspending.
2. Do you think an ageist ad hominem improves your argument?
3. What even is your argument? That in this contrived hypothetical the person in question is making a “shitload” and that somehow invalidates that 20% of EVERY tax dollar collected is used to just pay interest on debt (not even principal, just interest)
Do you have sources for this? I was looking for reliable sources on this.
You can find high-level summaries from various websites, but they might have a bias eg: taxfoundation
If the people with 90% of the income pay less than 90% of the total income taxes, something is wrong. Every lower income should be paying less, as a percentage of their income.
However, I am skeptical that higher taxes or just taxing the rich or high earners more will solve the deficit or government efficiency issues.
Also I disagree with 90% of income should pay 90% of taxes. People who are better capital allocators than the government should be incentivized to allocate over paying taxes.
We've spent the past 50 years lowering the taxes on those who have the most income/wealth with only negative outcomes to show for it.
I think the mistake you're making is assuming that those best at accumulating capital are also the best at allocating it. If they were, I expect we'd see a lot more investment into new technologies and markets rather than the large increase in rent-seeking we have seen instead.
That's the problem. It's not a spending problem per se, but the market's misallocation of resources. Too many resources are concentrated in too few hands.
That's not to say we should abandon capitalism, but rather we should change the incentives to support higher incomes more broadly, as we did in the 1950s and 1960s. It's not a coincidence that deficit spending/public debt skyrocketed when we cut the top tax brackets. That changed the incentives from encouraging paying good wages and investing in business growth to hoarding capital and the financialization of everything.
Feel free to disagree, but the historical numbers support that.
tl;dr: change the incentives to broaden the distribution of resources across the economy, strengthening the economy (70% of which is consumer spending) and increasing, in a broad-based way, tax revenues.
- The US median per capita income is quite high (top 2 or 3 globally IIRC). In light of that and the stat that the bottom 40% don’t pay federal income tax makes me think the tax brackets are already fairly progressive vs thinking the lower 40% is especially low earning.
- Additionally income inequality has been decreasing in recent years with lower percentile income earners increases outpacing even the relatively high inflation.
- I agree we should revert back to some policies.
- I don’t think there is much hoarding of capital, most high earners invest heavily.
> The top 1% of earners take in 22% of total income and pay 40% of all federal income taxes.
How misleading. Income here means AGI, i.e. taxable income as defined by the IRS. That excludes unrealized capital gains, loans against said unrealized capital gains, etc. For example, Elon Musk’s AGI was $0 in 2018 despite a massive increase in net worth. Wouldn’t call that his fair share.
> Myth No. 2: We’ll fix the budget deficit by taxing the rich
> We simply cannot. The collective net worth of every American billionaire is estimated at somewhere around $8 trillion. The projected federal deficit over the next decade alone approaches $25 trillion. Even a one-time total confiscation of every billionaire’s wealth wouldn’t come close, and you only get to do it once.
Hilarious argument. Suddenly it’s billionaires instead of the previously mentioned top 1%. Their estimated net worth is more like 40 to 50 trillion. Not to mention how much that wealth is expected grow in the next 10 years.
The entire article is similarly underhanded and clearly meant to mislead. Or perhaps to reinforce the views of readers who already agreed and weren’t going to think critically anyways. Doesn’t take a genius to guess who paid for it.
They pledge their unrealized capital gains as collateral for billions in loans, spend the cash, and pay single-digit interest instead of income tax.
Repeat until they die, then their heirs inherit the shares at a stepped-up cost basis, so the gains are in fact never taxed.
Again, I’d ask you to engage with this:
> I wouldn’t call that their fair share.
There is a good case to be made to tax wealth rather than income, which comes closer to people's intuition about what's fair.
To ensure that the consumption tax doesn't hit the poor too hard the govt can determine how much someone at the poverty line would pay, on average, in monthly taxes ie$200. The govt then deposits $200 monthly in to every US citizen's USG debit card.
https://en.wikipedia.org/wiki/Modern_Monetary_Theory
Basically, printing money is just an IOU, so you might as well not bother with a separate "borrowing" step. If the government wants something, they issue an IOU, in the form of its own currency.
On the flip side, the government still taxes, but it's just getting back its own IOUs. Instead of pretending it's depositing those IOUs back into a bank, they just tear them up and forget them.
If your taxes match your spending, there's no inflation. The money supply remains constant. If you do spend more than you take in, you get inflation -- which is OK, if managed carefully. It encourages people to go spend their money, rather than just sitting on it.
It's counterintuitive, but it's a lot more flexible than the way we handle it now. It lets the government spend its way past crises, especially during crashes when people hold on to their money.
High corporate taxes incentivized business investment that built the middle class.
Another stupid move was legalizing stock buybacks that was previously considered stock manipulation.
Doesn't even touch that the tax code is purposefully complicated to have zillions of loopholes so the very rich pay little to no taxes while everyone else funds an out-of-control military-industrial complex and socialism for the rich.
But the fear and dislike of taxes has clearly been weaponized by the ruling class to wage war on minimum wage workers and immigrants, in order to funnel as much wealth and power to the elites as possible.
The war on taxes was never "America vs Taxes" it was "The Wealthy vs. The Poor" and the wealthy were able to leverage the media to trick the poor people into reacting in fear that "The gov't is coming for your money." By just parroting their own fears about the gov't coming for their money and saying "it could happen to you too."
TBF, the Media really let/fueled this happening, likely because they were captured by corporate interests.
We can't have nice things without paying for them. People who believe they are self-sufficient seem to ignore all the public infrastructure that keeps society and the economy moving (e.g. roads, emergency response/firefighters, schools, parks, libraries, etc).
Imagine how much more entrepreneurial people could be if taking big big financial risks didn't have dire consequences like not having access to health care.
No one loves paying taxes, especially when you don't agree with ways it's spent, but that means we need to fix politics and spend money better rather than denying that society needs financial contributions from almost everybody to function.
Citizens shouldn't have to care about the efficiency of the Government, it should be allowed to fail like any other company. The economy wants off Uncle Sam's lap.
The very rich don't use a lot of that.
But what they do use a lot of is a reliance on educated employees, a wealthy customer base, a peaceful business environment, courts that enforce contracts, a stable currency, regulated and policed financial system, et cetera.
All of the above is highly under-rated and acknowledged IMO.
I think the only solution realistically is going to be continued balkanization of the states as they take up more of the tax burden. Which is not going to lead to the outcomes said voters want. It's a shame since I think we really need a proper national healthcare program but if the president can just shut it down on a whim then there's no point.
We've been limping around entirely based on the honor system, and after significant capture of the media by a few wealthy individuals, the parties have dropped any pretense of acting for the benefit of the country.
90% tax on all income over $100 million. That would mean anyone making $500 million would still be bringing in $40 million a year. If you need more than $40 million a year you are just greedy and want to be some kind of king.
This would also mean the power of wealth would be neutralized.
That's an income tax, not a wealth tax?
All it means is they would spend more on tax avoidance schemes which is wasteful.
Personally I prefer a wealth tax.
In 1980 Reagan began unraveling all of the pillars of that middle class success.
46 years later you can see the damage. Housing is unaffordable even for professional couples. Public colleges are gated to the upper classes.
There is no middle class anymore.
There is a middle class, but it is the worst place to be. The best two places to be are rich or poor. The middle class are all suckers, they are making the rich richer and are supporting the poor.
(I am poor.)
See “Director’s Law”
But the other side has been allowed to criticize taxes and government unfairly with little to no effective opposition. IMO, there is a strong case to be made that waste and corruption is quite low (as a %), and that almost all non-defense spending is spent well and has a positive impact on society, benefiting everyone.
I see a growing narrative that successful people "earned" everything they have on their own. People think "I paid my way through university, no one gave me anything", obviously complete nonsense. "I built my business from nothing, with no help from the government", and so on.
“Don’t vote, can’t complain” is reductionist BUT if you don’t vote every chance you can then it really holds true. Participate, folks! That candidate you like that “has no chance”? Go volunteer for their campaign! Make it possible! Primaries and local elections are often won on the margins. 1-5% changes, which are entirely possible, can change the course of a nation. This isn’t hyperbole, especially in a such hyper partisan times as these.
Hell, you never know when your efforts might lead a president 5-10 years later.
Citation needed. If you value something paid for by taxes you should pay for yourself. Feel free to pool your money with all the other people of value the same thing - should be easy if it's most people.
The tax cuts are fine, the only issue is funding them by deficit spending. The government services/entitlement should be cut instead.
If does not need to scale across the entire country, let people self interests drive the decisions instead of a faceless government body that doesn't give a damn about you and has a monopoly on voilence to make sure yoh pay your taxes.
This is even worse, not better. If what we see around us were due to corruption and waste, then the corruption might be rooted out and the waste might be curtailed. But if instead what we see is unavoidable as some intrinsic characteristic of bureaucracy and overhead, then your opponents won't be satisfied until they burn it all down and dance naked in the ashes. And I'd be inclined to celebrate with them.
The government is about as effective and efficient as the median large corporation, IMO.
Also why would you expect a large corporation to not be completely bogged down by bureaucracy and inefficiencies? That’s been my experience. The case against large government also applies to large business, it’s just that one has a monopoly on violence and the other has to compete in the market.
I'm not arguing that is great, or that we should simply expect it. But, that it's somewhat dishonest to portray government as unique in this.
I'm not disagreeing. So what? It's not wasteful, and it is effective at what the bureaucrats intended it to do. The Baby Stomping Machine 9000 is a marvel of efficiency and stomps babies much more effectively than the old way of stomping on babies. I get that. You're really, truly, factually correct when you say that.
And yet, I don't support it. I oppose it strongly, and I want to see it gone. And if the people who made it are punished afterwards, that's just a bonus. If they are heartbroken and forlorn with it being gone from the world, their tears are sweet nectar.
I get this. Why can't you? I can see it from your perspective. You can't see it from mine.
The benefit from addressing the problems outweighs the cost in inefficiency.
Fun fact, Americans pay more in healthcare taxes than most Canadians. Our healthcare is free. Well, kinda, about ~75% is free, for Americans it’s more like %40.
But there is absolutely no argument that can be made that if we just raise taxes a little bit we can solve all our problems. The math just doesn’t work out.
Personally I favour the thinking of Adam Smith, John Locke, Rothbard and Friedman, the classical liberal tradition, and as governments balloon across the west, more and more people are coming to that same conclusion. Give us a small efficient government, stay out of the market as much as possible with little to no interference, stop printing money and trying to control the economy it from the top down, stop being technocrats, let people live their lives the way they wish.
It's same argument as "who would build the roads if the government didn't exist??". Which is also quite naive, because the government doesn't actually build the roads. It forcefully takes tax payer money and then hires a contractor like any other business would to build the roads. If the government stopped existing businesses and individuals would still need a way to transport their goods, so they would just get together and hire contractors to pave roads so they can deliver goods to customers.
Same goes for just about every government program in existence. Before government welfare people would go to their local church or their community for assistance.
Government run schools have had dropping reading scores for decades even though they have more money being shoveled into them then ever before.
College Tuition costs are through the roof because the government got involved with giving out student loans.
Etc. Etc. Etc.
Not a comment on you, as I don't know you, but in my life experience all of the conservative-minded people I've known who bought into and parroted variations of the "welfare queen" myth were always the first in line for corporate welfare like subsidies, PPP/EIDL loans, and ZIRP benefits.
And actual American people I know who are not part of the top 10% work extremely hard and just want essential safety nets (of the type that nearly all other first-world countries manage to offer) so they don't have to worry about being homeless if they get an unexpected medical bill.
So I've always seen the idea that the non-well-off are just looking for handouts to do nothing as pure projection of the well-off as to what their mindset would be if they were less fortunate in their life circumstances.
Is there some small set of people who abuse the system (any system)? Yes, but I'm absolutely convinced a lot more people abuse the system at the high-end (for far greater overall cost) than at the low-end. And only people on one side of the scale are likely to ever face legal consequences for systemic abuse.
Who owns most of the property they are protecting? The police are a welfare program for the wealthy.
Likewise the index averaged stock market is now basically free money forever for people who already have enough to make significant investments.
Yeah, sure, it could crash down in theory, but we've all seen how much effort will go into protecting the money if that actually happens, primarily at the expense of the less-well-off (who are far more impacted by inflation than the wealthy, and will suffer the most as we continue to cut safety nets rather than raise taxes on the wealthy to deal with the debt created by the financial engineering involved).
We can afford everything. We choose not to.
Then create universal basic income.
Our economy would skyrocket.
No one needs to be a billionaire. It’s inhumane.
Similarly though, there's nothing stopping you personally from taking $50, $100, whatever and walking over to a shelter or food bank and donating. You don't need to wait for the government to stand up a program. Lead by example like McKenzie Scott is. We donate money to local organizations - again, no barriers here.
I don't care if someone is a billionaire, though of course we should tax them "appropriately". But if you're really mad about billionaires and you want these programs, you should be giving away your own money too and there's nothing stopping you. Waiting until you get just the right program or tax the right person is a bad strategy if you really care about some of these issues.
I've never really understood why people are so het up about billionaires. The distinction between them and decimillionaires seems mostly like comic book lifestyle stuff; like, OK, they fly their pets private for visitation with their ex-spouses or whatever, I guess that's offensive aesthetically?
Far, far more damaging to ordinary people is the Faustian bargain struck between the upper middle class and the (much smaller) upper class, which redistributes vast sums of many away from working class people into the bank accounts of suburban homeowners.
(Because fundamental attribution error guarantees threads like this will devolve into abstract left vs. right valence arguments, a policy stake in the ground: I broadly favor significantly higher and more progressive taxes, starting with a reconsideration of the degree to which we favor cap gains.)
Public spending on healthcare is around 8-9% of GDP once you add things up.
So you have already paid for a public healthcare system in many ways.
The thing is, in isolation, balancing the budget looks pretty easy. It's only because you have to deal with particular interest groups and a populace who has come to believe that any tax increase means they're getting shafted. I was able to balance that budget with the following changes:
1. Top one percent effective tax rate goes from 24 to 30 percent.
2. Higher income goes from 12.26 to 14.26.
3. Upper middle income goes from 7.7 to 8.7.
4. Middle income goes from 4.8 to 5.8.
5. Lower middle income goes from .1 to 1.1
6. Lower income goes from -4.1 to -3.1
7. Social payroll taxable maximum goes to 90% of taxable income.
Those changes alone, with absolutely no spending changes, balance the budget. Now, I'm not proposing that those changes are politically viable, and you can certainly fiddle with my distribution if you think something else would be fairer (I think it's fair because the rich have done much better than everyone else over the past 40 years so I think they can afford to pay more, but I also think that everyone should have to contribute something more or else you get the current problematic belief that the issue can be solved just by taxing somebody else), but I would strongly disagree if you wanted to argue that those changes would result in any substantial change in standard of living for anyone.
I think, numerically, the problem can pretty easily be solved just by taxation alone (though I think it would make sense to add some spending cuts), just not politically.
>At a certain point, increases in tax rates will not raise more revenue. Once someone's tax rate becomes sufficiently high, they might work less or try harder to evade taxes. Based on existing evidence, this simulation assumes that increasing this group’s tax rate beyond your current level is unlikely to raise more revenue.
And then it pretends like the maximum amount of income you can get out of the richest 1% is $203B.
This is rich people's propaganda that we've bought into by pretending that Rich people don't need this country. But that's a lie. If it were true, they would just move, instead of fighting tooth and nail for tax cuts in every single election.
Also the breakdown of spending categories and the way they're represented are pretty clearly politically motivated, and the Numbers look a little suspicious to me. They don't even align with the CBO numbers.
Another really obvious thing missing is a "Capital Gains Tax"
Which is currently pegged to like 20%, and how CEOs get all of their income. So If Capital Gains was taxed as income, I think that would at least start to make the Income tax realistic.
[1] https://web.stanford.edu/class/polisci120a/immigration/Feder...
I tried out the calculator and put in all your changes, and the budget wasn't balanced, there was still a 1.4T deficit (as opposed to the current 1.9T deficit). The app only claims the budget is "sustainable" now because it assumes GDP keeps growing at the same rate (which might not be true), and if so we'll hit a 3%-of-GDP "deficit target" in 25 years. Also adjusting a negative tax rate kind of seems like it is, in fact, reducing spending (i.e. the federal government reduces the amount of tax credits it gives out). This also assumes the federal government will not introduce new programs, new spending, etc. So really all you did was reduce the deficit by .5T along with a hope and a prayer that the economy will continue to grow at the same rate for the next 25 years (while at the same time the federal government does not increase spending). I personally think it's bad to have a deficit at all and that we should work towards zero deficit and eventually surplus (yes, I know there are all sort of growth hacks and such you can do with debt, but historically politicians have succumbed to slippery slope deficit increases and so for that reason alone I think holding politicians to a zero deficit standard is best -- do it for a few generations and now there's a precedent that protects us from getting into the situation we are currently in). To me a "balanced budget" is that your spending is <= your income.
Anyway, interesting calculator app. I do see the value in raising taxes for sure, but it's not easy politically to raise taxes and it's also not easy politically to cut spending (whichever group likes the thing you cut will scream), so ultimately it might have to be a hybrid solution where democrats increase taxes without increasing spending when they are in power and republicans cut spending without decreasing taxes when they are in power. When I say that out loud though it seems like a pipe dream, sigh...
- it does not matter at all, as long as inflation is under control (MMT)
- it's fine, as long as the long run average is ~zero (a cyclic argument)
- it's fine, as long as the long run average is a small stable % of GDP
- we have to balance the budget every year, no matter what
I don't think any serious person holds the last position.
The scale is completely different. Economics do not simply scale up and down, the math changes drastically when the numbers get bigger.
Yes, the scale is different. This means that the debt problem can go on for far longer without being apparent. It can even be put off until the current slate of politicians are out of office, until they're dead of old age and beyond accountability. Scale can hide things, by making them so big your field of vision doesn't allow you to see it all at once.
I think this is theoretically viable only if debt % is lower than growth rate. Recently US debt % of GDP has been higher than growth rate.
And yet, that's the only position that (were it followed) would see us free from ruinous debt. What are we paying in interest every year again?
I am referencing only the American zeitgeist, I assume other countries might have better systems.