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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.
[1] https://en.wikipedia.org/wiki/Exorbitant_privilege
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 deficits are funded by the US population at large via internal debt and inflation.
There's a slight uptick of foreign holding 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.
[1]https://en.wikipedia.org/wiki/Modern_Monetary_Theory
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.
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)
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.
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.
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)
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.
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.
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.
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 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.
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.
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.
I am referencing only the American zeitgeist, I assume other countries might have better systems.
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.
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.
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.
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.
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”
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.
All it means is they would spend more on tax avoidance schemes which is wasteful.
Personally I prefer a wealth tax.
That's an income tax, not a wealth tax?
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.
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).
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.
We can afford everything. We choose not to.
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.
- 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.
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.
The scale is completely different. Economics do not simply scale up and down, the math changes drastically when the numbers get bigger.
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?