Let's start out the week with a brief reminder of what the federal government spends its money on:
Your goal is to find $1,700 billion in either spending cuts or tax increases to balance the budget. Generally speaking, most people agree there should be no cuts to defense, Social Security, Medicare, or veterans, which leaves $2,500 billion still on the table.
Can you cut $1,700 billion out of $2,500 billion? If you cut 10% across the board, that's $250 billion, which leaves $1,450 billion in tax increases.¹ If you're even more of a hardass than most MAGA Republicans and think you can cut 20% across the board, that's $500 billion, which leaves $1,200 billion in tax increases.
Can you magic your way out of this by assuming huge economic growth? Nope. It's a favorite piece of smoke and mirrors, but it's completely bogus.
Long story short, it's hard to see any way out of this other than substantial tax increases. The question is when we'll ever face up to that.
¹That's a one-third increase in taxes. It's a lot! Much of it can come from increased taxes on the rich, but probably not all of it.
A Member of Congress I worked for back in the day conducted a few Balance the Budget seminars/town meetings with his constituents. The only thing they could ever agree on was cutting "Foreign Aid" -- which is a microscopic portion of the budget.
Foreign aid in 2024 is about $70 billion. I’m not sure where in Kevin’s bar graph it falls. The biggest recipients are Ukraine and Israel, so maybe a large chunk of it is “defense discretionary.”
In any case it’s about 4% of the deficit and just over 1% of the $6.13 trillion budget.
You have to cut where the money is. That means Social Security, Medicare, Medicaid, Domestic Discretionary, and Other Means Tested. That's over 5 trillion. We can cut it all by 20% and save 1 trillion.
Next step is to do things that make our economy more efficient and let us grow more quickly. A few quick examples:
1. Eliminate minimum wage and instead use government transfer payments to increase income for workers who cannot earn enough to support themselves. This increases employment and output while reducing government welfare outlays since we only need to top up the earnings of workers who make less than current minimum wage rather than totally support people who are priced out of the labor market.
2. Big crackdown on NIMBYism and regulatory barriers to building. Just forcing big cities to make it easier to build housing will bring down rents and house prices while making it easier for more people to live in places where wages are higher and they can earn more money.
3. Big crackdown on unnecessary licensing (things like licensing barbers and hair braiders). Licensing should be reserved for professions that impact health and safety or where significant money is at stake. There is no need to license barbers and such. Increased labor mobility and lower barriers to enter professions again will increase growth.
4. Replace income tax and capital gains with VAT. It's European so liberals should love it! Tax consumption instead of earnings and investment returns.
5. Replace the current student loan system with one in which private lenders lend the money based on grades, standardized test scores, school being attended, and major. Make schools responsible for a big part of loans that their students default on. Lenders will refuse to lend to people whose schools, majors, or grades make them bad risks and schools will need to cut majors that do not deliver financial returns large enough to allow graduates to repay their loans. More people get pushed into high value majors or out of college totally if their increased earning from college are likely to be less than the cost of their education. This eliminates a huge chunk of malinvestment while making future loan forgiveness almost impossible because funds would need to be appropriated to compensate the lenders.
6. Deport aliens who become public charges or if a preponderance of evidence indicates they committed a crime. Meanwhile, make it trivial for anyone who has a job offer that pays more than median US wage to immigrate and get a work visa. Get rid of immigrants who cost us money and import huge numbers of immigrants who work hard, add value, and pay taxes.
Oh, and let's be realistic. Defense spending is going to have to go way up. If we learned one thing from the Ukraine War it should be that a major war will last a long time and if we do not have a domestic arms industry big enough to resupply our military we will lose. Our most likely opponent in a major war is China and it is going to take trillions to match their defense industry capabilities.
I generally try to remain polite in most online forums, occasionally using dry sarcasm as a mild put down.
But I've decided to make an exception just for you.
You're an idiot. None of the things you've mentioned have any provable connection to a growing economy, and several have reasonable levels of evidence that they would negatively impact a growing economy.
This is for sure a joke. This comment is designed to piss off people in this comment section. I salute you for your trolling, sir.
"Eliminate minimum wage and instead use government transfer payments to increase income for workers who cannot earn enough to support themselves. This increases employment and output"
Unemployment is at 4%. We don't need to increase employment--we are already basically fully employed. And it definitely doesn't increase "output"--why would any company invest in their own automation if they can pay somebody pennies to do a job and the worker will get their real paycheck from the government?
Your proposal is to basically make salaries for many (most?) jobs externalities, basically guaranteeing that labor is wasted on stupidity:
(a) the employer doesn't care if the worker is doing something particularly useful, because they effectively cost nothing.
(b) the employee doesn't care if they are doing something particularly useful, because their employer doesn't care (see (a)).
(c) the government I guess might care if employees aren't doing anything particularly useful, but since in your idea the government isn't anything but uncle moneybags to pay wages for things the market doesn't need, it's not clear (aside from commandeering private enterprise) what say the government has in any of this.
Example: I am a business owner. I might think it's fun to have a hundred employees on staff to sing christmas carols all day long, but I don't do it because it would be a stupid, stupid waste of resources to pay a hundred people competitive, living wages to do something so pointless. But, if I didn't have to pay a competitive, living wage because Uncle Sam would pay the rest--say, I pay a dime an hour and the taxpayer foots the other ~$10-20/hour--maybe I do hire the hundred carolers. And they are happy to do it, because for 10 cents an hour, I really don't work them very hard--maybe it's "deck the halls" on the hour, and the rest of the time they can spend on their phones. Do you see how stupidly market distorting your idea is?
"make our economy more efficient and let us grow more quickly"
We already outgrow the developed world--it's unclear why radically changing our system based on poorly thought-through ideas is either called for or likely to do anything other than cause problems.
great idea eliminating the minimum wage. put the burden for compensating labor entirely in the hands of the government. while we're at it, let's subsidize businesses that operate at a loss, in essence abolishing red ink. let's socialize all risk while keeping profits private.
Others have debunked your list of idiotic ideas sufficiently enough. I'll just add this. You're a special kind of stupid aren't you?
You utterly destructive ideas would be disastrous for the US economy. Take the complete nonsense for student loans. Capital costs the private sector between 300% and 500% more than for the government. Further, we got rid of the private sector in student loans because their profit margins they demanded made their products uneconomical. Students already are so massiviely incentivized to get degrees that pay for themselves that the extra incentive you envision is ingsignficant. (Almost no one gets degrees in gender studies, despite the constant nonsense spewed by professional liars on the right.We already have that the number one and two undergraduate degrees are business and health professions. More people would get degrees like those or engineering but the schools won't take them
Most people have absolutely no goddamn clue how/where the government spends its money. As far as they're concerned it's 90% WasteFraudandAbuse and 10% Shit I Care About (esp. my SS check). Judging by NYPost covers, we're spending over $100 trillion a day on T-bone steaks and free Air Jordans for migrants in NYC.
Isn't "foreign aid" mostly doing double duty as a way to steer more money to American defense contractors? The rest is about maintaining our soft power and monitoring disease before it gets here.
Contractors who have factories, or have subcontractors who have factories, is almost every congressional district. Not efficient for production, but very politically efficient--no one wants to cut money going to their home district.
defense contractors and US agriculture, yes.
There is a couple billion a year in foreign aid that goes to a country with a higher per capita GDP than France or the UK though.
Why does the chart exclude student loan offset? I would think it is either epsilon so wouldn’t hurt the point, or not epsilon in which case it should be included.
I'd guess because it is in limbo.
"Generally speaking, most people agree there should be no cuts to defense..."
"most people" is doing a lot of heavy lifting there.
Right. It's "most politicians" because the military industrial complex has made sure each and every Congressional district has some kind of reliance on defense spending and reducing anything will lead to job losses somewhere and then that representative's ass is on the line for it.
Actually, because most of us realize that a war with China is becoming more and more likely and that unless we significantly rebuild our defense industrial base we will get our asses kicked.
Post-Ukraine, the idea of a "come as you are" war is clearly a fantasy. We cannot even match Russia, North Korea, and Iran in 155mm artillery production. The idea that we can keep our military supplied during a long war with China is ludicrous unless we invest trillions in arms production capacity.
think of defense as the main plank of the American version of socialism: investing in communities, state provided employment, housing, healthcare, education.
it's done rather poorly (inefficiently), but that's a huge chunk of the reason for the opposition to cutting it.
Military spending is what proves that everyone is ultimately a Kenesian
"Generally speaking, most people agree there should be no cuts to defense, Social Security, Medicare, or veterans..."
Most members of the general public believe that. Republican politicians and conservative theorists are all-in on burning those programs to the ground, which would (by your chart) free up $3,170 billion... to put into Defense and tax cuts for plutocrats and corporations, since Republicans only care about deficits when they're not in power.
Social Security and Medicare are funded from payroll tax. The amount you pay for actual income tax is reduced by the amount you pay in payroll tax. This is how IRA contributions work too; your income tax is reduced by payments to your IRA. Does anybody believe the Feds can appropriate money from a person's IRA account and maybe give it back and maybe not? Of course not. So leave Social Security and Medicare off your list, Kevin. These programs are still running a surplus anyway, which gets dumped into the General Fund. This is why jerkoff republicans keep trying to reduce SS payments, because this increases the surplus collected from payroll tax which increases the amount dumped into the General Fund which artificially reduces the deficit.
If you take SS and Medicare off the table you get $3.64T. Now create new bins:
Defense
retirement and medical benefits to veterans
DoE - which is mostly bomb stuff
NSA
CIA
interest paid on money borrowed for foreign adventurism (e.g. Iraq and Afghanistan)
The bins above, all related to military spending, are a huge part of the spending. The easiest way to deal with the deficit is to cut 5% of the military budget every year for 10 years.
And here is another thing. How exactly is it that the U.S. ends up borrowing so much money every year? Well, a huge part of the problem is the ridiculously low corporate income tax. Suppose a huge corporation like Apple "should" pay something like $10B in corporate tax (this is an arbitrary number pulled out of the air for the sake of argument, before anyone objects) but they have paid off enough legislators that the tax code only requires them to pay $1B. Well, that leave the Treasury $9B short so they go to Apple and sell them $9B in TBills. So the Feds have cash to keep the lights on - yay!! - but they have to pay that $9B back to Apple with interest. The smart play is to change the tax code so that Apple pays the $10B and the Feds don't have to borrow and then repay the $9B they are borrowing (from Apple!) today.
"These programs are still running a surplus anyway, which gets dumped into the General Fund."
Uh, no, it doesn't. It is lent to the GF, but must be paid back, with interest. If we're being honest here, let's be honest here.
Yes, I understand that the money is being "lent" to the GF which is fair. That is the word that is used. Do you actually think the GF will pay any of that money back if SS and Medicare start running deficits? I don't. If that were the case then why is it even possible for the republicans to talk about reducing benefits to people who paid payroll taxes for decades?
Do you have an estimate for the total contributed to the GF over the last 30-40 years? I'm guessing well over a trillion dollars but perhaps you can find an accurate number for us.
Do you actually think the GF will pay any of that money back if SS and Medicare start running deficits?
The GF is already paying the money back. When the Social Security administration presents its IOUs to the rest of the government, that is exactly what happens: the general fund (ie, the rest of the government) pays back the money it has borrowed from payers of the Social Security payroll tax.
Perhaps you're confusing this phenomenon with the exhaustion of the government securities held by Social Security? That's a different issue, and, if memory serves, it is believed this will occur sometime toward the end of the 2030s. As to what happens at that time is anyone's guess, though for the life of me I don't understand why Democrats (next time they have the votes) don't simply pass a bill to guarantee benefits continuity indefinitely out of general revenue.
I think I see what you mean. I just now found this:
https://www.ssa.gov/OACT/ProgData/assets.html
The upper graph shows how much has been collected in payroll taxes for Social Security in excess of payout. Since 1989 this amounts to almost 3 trillion dollars.
The lower graph is interesting because it shows the seasonality (think April 15) of payroll tax collection. Starting in about 2010 you see that for one quarter per year the "take" for payroll tax is lower than the payout, but the annual "take" is more than enough for the total annual payout. I don't see that this counts as "the GF already paying the money back."
It has been a little weird since Covid. It looks like so many people were out of work then that payouts exceded "take" so I guess you can make the case that the GF payed money back into the system, but then the GF owes almost 3 trillion dollars. I guess my point is that the Rs don't want to pay that 3 trillion dollars back. In fact, they don't seem to want to pay any of it back, which is why they want to lower benefits. The Ds are proposing something more reasonable - raising the ceiling for payroll tax - but this also begs the issue of the 3 trillion dollars the GF owes to the SS program.
You kind of cooked the game by aiming for a balanced budget. Obviously that is not happening without some sort of paradigm change as to the role of taxes and/or government in US society, so yes, your point is made. And it is not necessary to balance the budget.
A more realistic objective would be reducing the budget deficit. Which we could do (in a different political environment). Obviously, more taxes would be a major, probably THE major part of that.
Yeah, it seems like a pretty unreasonable target to me. Although I suspect Kevin isn't necessarily advocating for it -- just highlighting the non-seriousness of the GOP's obsession with deficits (when a Democrat is in the White House, obviously).
Pretty unreasonable in that Clinton did it, and Bush Jr. undid it. Undo the Bush Jr. and disgraced shoe salesman tax cuts, and how does the picture look?
Maybe "unreasonable" isn't the proper word I was looking for. Something like "arbitrary" probably expresses it better.
A minimally ambitious target would be to reduce the deficit to the point where the national debt does not grow as a share of GDP. That keeps debt servicing from becoming more onerous. If the deficit can be held down to the point where the debt as a share of GDP shrinks, that would see the burden of debt servicing gradually decline.
The cost of debt servicing becomes gradually more onerous because of the growth of the debt.
The cost of debt servicing becomes rapidly more onerous, or becomes rapidly less onerous, depending on the growth or shrinkage of the interest rate.
What, I wonder, was the "paradigm change" that enabled Clinton to achieve a balanced budget in that brief period between spendthrift Republican administrations?
As I recall, that was a couple tax cuts ago, a lower defense burden because of the Peace Dividend (as opposed to the Post 911 endless war), the demographics of Social Security were more favorable, and for awhile there was a period of massive capital gains taxes coming in as people cashed out their stock market gains (there was a bubble that burst in99 I think.
The paradigm shifts I was alluding to would be European levels of taxation and/or major major cutbacks in what Americans get in terms of National Defense or Social Security benefits.
Yes, I have pointed out before that defense spending was actually reduced because of the end of the cold war, and the huge stock market bubble increased tax take.
But this was also a period of no major wars and no major recessions. These are the things that really increase the debt - apart from the massive tax cuts in Republican administrations. The Clinton administration increased tax rates slightly but that was not a major factor.
There is no magical solution to balancing the budget. Kevin has it right - to get deficits down to GDP increase tax rates absolutely must be increased.
Previous comments forget to credit the tax increases Clinton got through in the first year. Gore tried for a carbon tax given his early alarm about climate change/global warming, but couldn't get it through the Senate, so the best they could do was increase the gas tax. It took a lot of heavy lifting, and cost the Dems control of the House in 1994, leading to Newt Gingrich as Speaker. Combined with Fox, New is responsible for our current political climate.
Much of it can come from increased taxes on the rich, but probably not all of it.
Why not all of it? Is there a case where being a billionaire has ever made someone a better person, or where they've been actually better off than they were when they had half that?
Billionaires should be illegal because they're bad for everyone, even themselves.
This strikes me as a bit extreme.
We simply do not make tax policy based on the morality of the people being taxed, with the exceptions of 'sin tax' on commodities like cigarettes, alcohol, and lotto tickets. And these are already regressive taxes.
So maybe you're right after all, but the notion won't fly well with all the wannabe billionaires, so it's still a bit extreme.
Supposedly when Willie Sutton was asked why he robbed banks, he said, "That's where the money is."
Recently a jersey allegedly worn by Babe Ruth was sold at auction for over $26,000,000.
Taxes on the Rich are too low.
It's not about morality, it's about the physical health of society and the mental health of people whose excess leaves them entirely alienated from any common interest or human connection.
And the kind of character that sees that alienated and unaccountable state as admirable or exemplary are, in every case, bad people who have no quality that evokes anything but condemnation, which they will hide behind their bank accounts or pretension. It's why social conservatives, incapable of natural empathy or sense of context, immediately relate to the state of the very wealthy, who can't be approached or contradicted.
Too much wealth is as bad for a person as having too much fat, so much you can't get off the bed, and as much of a burden for everyone around them.
Those "sin taxes" are counterproductive because they try to accomplish two conflicting goals: raise revenue and discourage undesirable behavior. If it's successful at the latter, the former obviously fails, which creates a situation where the government wants to encourage the bad behavior to get the income. Only if the revenues are targeted for specific programs to address the behavior, which won't be needed if the behavior disappears, do these kind of taxes make sense.
"Those "sin taxes" are counterproductive because they try to accomplish two conflicting goals:"
Only if you are simplistic about it. Taxes on cigarettes have driven smoking rates down from basically half the adult population at midcentury to a bit more than 10% now. That's a major public health policy success, and states haven't perversely started encouraging people to smoke to keep that revenue stream alive.
So yeah, sin taxes can work, and can work wonderfully.
A lot else also lowered the smoking rate but I have no idea how or why anyone is shelling out $13 for a pack of those things. The price is certainly a major component in reducing smoking.
The the thing about sin taxed products is that the demand is otherwise inflexible. A bottle of booze for a minumum $30 instead of $15 won't make much difference in sales. And snob appeal means most consumers won't even switch to the cheap stuff to save money, even though with something like vodka there is very little difference particularly when used in a mixed drink.
"Billionaires should be illegal because they're bad for everyone, even themselves."
Exactly. Nobody should have a billion dollars. Nobody.
I wish I could post charts of income inequality and incomes by class compared to productivity increase over the years.
HEY KEVIN we like to post charts and graphs too.
The math almost certainly doesn't work. You can't close a $1.7 trillion budget gap by taxing billionaires alone, or the super-rich generally.
That isn't to say we shouldn't do it. The super-rich should be taxed at exceptionally high rates IMO. But more modest tax hikes will need to extend down the spectrum into the merely well-off.
Total income in the US is something north of 20 trillion, to get an extra 1.5 trillion in taxes you would need to increase our total tax collections by somewhere around 6% which is a lot but not undoable if there was the political will.
I will never get the centrist obsession with the deficit or the debt. It’s not real. Issuing government debt is just printing slightly inconvenient money, and we can do it pretty much forever. The British govt has never paid back the debt it issued for the French and Indiana War- it just keeps paying the interest, which has been made insignificant by inflation. Worrying about the deficit is the centrist version of being a goldbug.
At some point debt service will eat up the budget. But hey, you could save about $900B just by defaulting on it!
Debt service to GDP was much higher during the Reagan and GHW Bush administrations: https://fred.stlouisfed.org/series/FYOIGDA188S
It has been increasing lately, and needs attention, but there are already efforts to counter it: Fed rate decreases and infrastructure investment. If necessary, we can take further steps toward restoring the long-term trend of ~1.5% of GDP.
The national debt isn't what's important, it's the debt/GDP ratio. Japan's is twice that of the US, and they're not suffering from hyperinflation.
The debt-to-GDP ratio has been critiqued as being a ratio between a stock and a flow; problematic as a measurement. Debt-service-to-GDP is a ratio of flows; plus, service cost is what shows up in the budget. There is sort of an automatic correction at play, also: higher interest rates can increase service costs even when debt is not increasing, but interest rates are raised to fight inflation, which decreases real cost of debt service.
Payments to service the debt do not vanish into a black hole, they go back into the economy. Of course they may tend to go to people who use the money for the wrong things, such as bitcoin.
Problems arise when a country owes too much to foreigners and has difficulty making the payments. But the US is still a long way from being Greece.
The problem with your comparison is that we have a structural deficit, not a one-time deficit from a couple of wars. That structural deficit exceeds growth and inflation - therefore, interest cannot be made insignificant by inflation. The opposite is happening, net interest is consistently increasing (currently over $800 billion annually). How long can that be sustained? How high can interest payments go before there are problems? No one knows, but it's not forever.
"That structural deficit exceeds growth and inflation" No it doesn't. You can tell because the debt to gdp ratio has fallen under Biden.. "net interest is consistently increasing (currently over $800 billion annually)." that is solely because the interest rate of US bonds is rising. And note of the nearly 900billion we pay in interest, just under 200billin is to the federal reserve and immediately added to government revenue. But T-bill rates have fallen drastically in the last year (about 30% for the 2 year).
The debt-to-gdp ratio has fallen under Biden only because of the anomaly of the effects of Covid policies (depressed economy combined with massive stimulus) in 2020. Yes, debt-to-GDP has fallen from that anomaly, but it's a lot bigger than it was in 2019 (about 10% higher) and will keep increasing because of the large structural deficit.
Secondly, yes, interest rates are a big reason debt service costs have gone up. But the point remains - even at a steady-state in terms of interest rates, the cost to service the debt will still increase because the debt in increasing faster than growth and inflation. And if inflation increases (as we've recently seen), then interest rates will increase. The point being, the contention of the person I responded to that debt is no big deal because it can be inflated away like the Brits did is not possible in the present circumstances.
I've always liked Krugman's description of the federal government: an insurance company with a military.
You are missing several line items there, especially net interest which was $843 billion in 2023.
Right. A graph of the increast in interest in this century would give more context.
Who woulda thought Slick Willie would be the last president ever to balance the budget? Give the man credit. And the end of the Cold War more.
Especially since this century started with a balanced budget.
Some people connect the budget surplus of the turn of the millennium with the housing bubble. The lack of safe US-issued debt made people want the next safest thing (or so they thought): US mortgage debt.
Interestingly, Jackson paid off the debt in 1836. In 1837 the stock market crashed and land prices collapsed.
Slick Willie and a GoP Congress.
The reality is that the conditions that allowed that in the 1990's are simply not possible today. For example, you can only do a post-Cold War military drawdown once. Another big factor was the social security revenue surplus in the 1990's which is now revenue negative. I don't remember the exact figures, but that alone counts for several hundred billion annually. This is a demographically-driven phenonomon that really has little to do with Presidents and tax policy.
The DOD budget is what allows the US to run a deficit. Foreign folks will keep buying our debt to keep those 11 nuclear powered aircraft carrier battle groups sailing the 7 seas. I think they also like the Boomers prowling around undersea. I think they are nuts, but what do I know?
You do realize that china quit buying US debt 2 decades ago. Most US debt since 2007 was bought by the federal reserve.
At the risk of being tiresome, the deficit is not a problem, it's a solution. In particular, it's a solution to the problem of matching aggregate (public plus private sector) demand with potential output at full employment. If, as is usually the case, demand is insufficient to buy up full employment output, unemployment will result, and the Government can increase demand by spending more or cutting taxes so households can spend more. If demand is excessive, inflation will result as prices are bid up. In that case, the Government can spend less or tax more to reduce demand.
The holy grail of economic policy is full employment and stable prices. The arguments that the deficit, and resulting increase to public debt, will cause the sky to fall are either ignorant or disingenuous.
Yep, that's a good perspective.
Not popular to say, but most OECD countries have a VAT (value added tax). This broad based tax, in many European countries, equals about 30% of total Federal revenue.
How about a carbon added tax.
That is the most rational tax, and hence the least likely to enacted in the US.
And the good part is that all the taxes are built into the price on the shelf - which in the EU tends to be lower than in the US anyway (for reasons I do not understand).
They also have robust welfare states to counterbalance the effect of the VAT on lower-income folks.
Please, anyone that's going to insist on a balanced budget couldn't pass Finance 101 or Economics 101 so why are we paying attention to them? Having some debt isn't bad; having an increasing debt to income ration is bad. That holds for an individual, business or government. The problem now is that the debt/GDP ratio has been increasing and that is the fundamental problem. Let's assume that real GDP is going to continue to increase by about 2% while prices will also increase by 2%. That gives us a 4% increase in nominal GDP and using the current GDP of about $28 trillion, we could increase the debt by about 1.1 trillion annually now without increasing the debt to income ration. On that basis, you "only" need to cut expenditures or increase taxes by $0.6 trillion. Still a tough slog, which is Kevin's point. And realistically, given business cycle fluctuations and reductions in taxes and increases in government spending with the next recession, the goal should be somewhat more than $0.6 trillion to take into account cyclical fluctuations. If you look at how we got to our current debt-to-GDP ratio, it was the stimuli associated with the financial crisis and Covid.
Came here to make a similar comment. There's a pretty strong case that we're no longer in an era when inflation is stuck on low, and so some deficit trimming is in order. But there's no reason we ought to completely eliminate the deficit—indeed doing so, especially precipitously, would be harmful. IIRC Krugman suggests we need about 2.5 % of GDP to stabilize the debt/GDP ratio. Even if we were to go a bit beyond that so as to nudge the ratio downwards, we probably only need to cut borrowing by about 3 points of GDP, or roughly $800 billion. That's not nothing, but it's pretty manageable for an economy as large and as rich as America's.
... the stimuli AND the Reagan and Bush and Trump tax cuts, which at their times caused the greatest or nearly greatest increases in national debt as a fraction of GDP.
"The problem now is that the debt/GDP ratio has been increasing" It's fallen under Biden. "Let's assume that real GDP is going to continue to increase by about 2%" That's been nearly 3% under biden. With ideal inflation we have a 5% nominal increase in gdp. And less than 5% increase n the debt with a 1.7trillion dollar deficit.
Rich: "...anyone that's going to insist on a balanced budget couldn't pass Finance 101 or Economics 101 so why are we paying attention to them?"
Hmmm ... Fortunately, that fellow Keynes is dead. If he were simply sleeping peacefully, that statement would likely upset him.
I don't remember Keynes insisting that budgets should be balanced. Enlighten me?
He did accurately predict that in the long run he would be dead though.
Oooh, not "balanced budget" AGAIN.
Look, the only people who talk about balancing the budget are comfortable armchair theorists, who mostly don't know at all what they're talking about, OR Republican politicians, who are lying.
It does nobody any good to rehash the topic, or to point out true facts about it, eg that the large majority of the debt is money owed by us TO us and hence in certain ways is effectively an investment, or that a much more significant measure is deficit/debt as a percentage of GDP, or that it's Republicans who historically are responsible for big increases in the national debt (the sole recent exception being when the Obama administration dug us out of the worst recession since the Great Depression). The armchair theorists don't understand and don't care -- they just want to blather -- and the Republicans won't stop lying about it.
A more interesting topic would be, how should the federal budget be structured -- say, allocated among the components on the chart -- in percentage terms? Of every dollar spent, how many pennies on defense, how many on old-age entitlements, how many on other topics? What are the comparative values to the country?
Yeah, that Clinton fellow wasn't a real politician, he was just an armchair theorist who didn't know what he was talking about.
Wasn't Bill Clinton on track to eliminate the deficit back in 99? What changed since then?
He REDUCED it -- we ran a surplus on an annual basis for a couple years IIRC -- but ELIMINATING it would have required continuing that for a loooong time, and then Republicans cut taxes for the wealthy again.
GWB's people were worried we'd pay off too much of the debt, so we and the world wouldn't have enough Treasuries available to run the financial system.
You are confusing the deficit with the debt.
Not quite. The annual budget DEFICIT was turned into a small surplus in the nineties, and thus had a small reductive effect on the the cumulative DEBT. Tax cuts under W and TFG, the 2008 recession, and Covid spending blew that budget progress right out of the water.
It was actually a huge surplus and was massively decreasing the debt.
Don't forget a bazillion trillions W spent on a stupid war that accomplished nothing and was fought against the wrong country and we are still paying for in medical expenses not to mention a destablized Middle East (which is actually West Asia).
I think it was in some kind of magic off-book bucks that didn't count though.
"but ELIMINATING it would have required continuing that for a loooong time" And by a long time you mean 4 years. The fed was screaming that they couldn't do there job of controlling money supply if the debt was allowed to get any smaller.
During the Clinton administration, the deficit was eliminated, and turned into a surplus. The total debt, though, barely went down.
No, he ELIMINATED the deficit. And then the Republicans cut taxes for the wealthy, and we were back to running a deficit again.
I don't think I said he eliminated the debt, just the deficit. But the situation was good enough almost as soon as the GWB Treasury was in charge, they stopped issuing 30-year bonds. And IIRC Alan Greespan was concerned about the future. https://www.federalreserve.gov/boarddocs/testimony/2001/20010302/default.htm
Clinton’s temporary surplus was caused by a once in history convergence of a new productivity increasing tech and the deinfaltionary impact of the collapse of the Soviet Union hitting at the exact same time. Don’t expect something like that to happen again.
The productivity surge was not so unusual that it couldn’t be repeated if businesses would invest more in production technology: https://www.economicstrategygroup.org/publication/in-brief-us-labor-productivity/#:~:text=Since%20then%2C%20the%20economy%20has,percent%20rate%3B%20and%20finally%20a
We elected GWBush who spent like a drunken sailor and claimed that deficits didn't matter.
What really happened that time Clinton (and a Republican Congress) ran a budget surplus:
Between fiscal years 1998 and 2000 the Federal Government ran a surplus of about $480 billion. That means you and I and Bill Gates paid the Government $480B more in taxes than the Government paid us for labor, stuff, etc. We paid that money out of our savings (there was nowhere else for it to come from).
At first, this didn't seem to make much difference, because most private sector financial assets are not Government funds, they are privately issued promissory notes payable in Government funds, and besides many of us felt flush due to the dotcom stock market boom.
But in March of 2000 the dotcom boom turned into a bust, and the stock market lost about half of its value, and the question of where the Government funds to pay off those privately issued notes started to raise its ugly head.
When people worry about paying or being paid, they tend to cut back on spending, and a cutback in spending defines a recession. And in March 2001, just weeks after the hapless GWB was inaugurated, a recession was declared.
Fortunately, GWB had a solution: tax cuts (the stopped clock of Republican economic policy). The Economic Growth and Tax Relief Act of 2001 was quickly passed and signed on June 7, 2001. It provided for rebate of 2000 taxes of $300 for individuals and $600 for households (plus some tax cuts for businesses because Republicans). People spent the rebates, the deficit went back up, and the recession was over by November.
Where are interest payments on the graph? And a big dent could be made by not having the fed pay way over market interest on reserves it holds. Tht won;t affect this graph but it will increase revenues with the only cost a reduction in corruption..
RFK, jr clearly has a type,
https://bsky.app/profile/tomtomorrow.bsky.social/post/3l4thyba4in2a
Conservatives should inherently understand that federal spending contributes to GDP. Whenever a military base or manufacturer faces the threat of closure, that state's conservatives rally to force the federal government to stop it. The problem is that they cannot get past their cognitive dissonance.
Other than significantly higher upper bracket taxes, what stands out from where we were 60 years ago is the growth of billionaires *and* their routes to hide their incomes from taxes.
Shift the Overton Window on taxes, then cut the rich person tax loopholes and tax them rich more.
What exactly is the problem we're trying to solve here?
If they increase my taxes I'm going to expect more from the government, such as universal healthcare.
Why is Social Security and Medicare listed in the chart? Are they not financed through their own taxes? The implication seems to be that if we cut Social Security, we could channel some of that money to reduce the deficit. However, then we'd be using the designated Social Security tax to pay for general expenditures, which means that workers whose greatest tax liability is FICA are paying for the tax cuts that primarily benefitted the upper classes.
Both programs do in fact have dedicated funding streams. The FICA tax, plus interest on the special-issue bonds in the Trust Fund, plus a portion of the bonds cashed in, fully fund the Social Security system at present. Medicare revenues, however, fall short of expenditures and are supplemented from general revenues. Of course, this is partly because the costs of medical care in the US are significantly higher than in other OECD countries. (The rest of the shortfall is that Congress is reluctant to raise the Medicare tax rate and/or premiums).
Yes, Medicare does need supplementation, but I am not sure that Kevin's chart is showing just the supplemented amount. To dig a little deeper into our broken healthcare system, it's important to note that Medicare and Medicaid subsidize the rest of us. That is, even full-priced insurance through, say, COBRA, does not cost what we spend per capita in this country on healthcare, which is over 10K a year.
I suspect that it is more likely that we will fail to increase SS taxes enough so that when the trust fund runs out and income cannot cover expenses for SS, the answer will be to use general funds (probably borrowed) to cover the gap.
So it might work the other way...
It might. It's still a decade away even by the most pessimistic projections. It's more likely that voters will be convinced that Social Security is what drives our deficit. As a statement of fact: it doesn't.
"Much of it can come from increased taxes on the rich, but probably not all of it."
Not even most of it. No country funds its government on "the rich". If you look at the European states, it is funded heavily by taxes on the middle class. Some examples:
The UK's 40% tax rate kicks in at 37,701 pounds
Germany's 42% tax rate kicks in at 62810 Euros
France's 41% tax rate kicks in at 78571 Euros.
The middle class is where the money is. But not even Democrats are going to raise taxes on the middle class. Until we're bankrupt and have no choice.
You're saying that certain tax rates kick in at about 1.5x the median income. Which is not so much the middle class as somewhat upper middle class. And a bunch of details matter a lot. In Germany, are the first E62K tax free, and then one pays 42% on income above that? What tax credits are applied to gross income in order to obtain the adjusted gross income to which taxes are applied?
Also, 95% of taxes in Germany are federal taxes, whereas in the USA, state taxes and local property taxes are a bigger chunk of the overall tax revenue.
And finally, Germany has relatively high income inequality, and thus is not a model to be admired.
Also, the middle class is not where the money is. The top 10% receive 51% of income.
In order to talk about taxes in a proper context, we need to point out what services the middle class in those countries receives in those countries, e.g. healthcare, parental leaves, generous vacations, universal pre-school, etc. Whereas we get...DHS? Bloated defense budgets?
Good point.
Much of the deficit comes from the republican/Reagan policy to “starve” the beast. Meaning cut taxes and run big deficits and then try to “balance” the budget, by cutting social safety net programs.
The used the totally faux Laffer curve (Laugher as in bad joke curve) as “justification” saying cutting the budget will lead to economic growth, it doesn’t and never did.
I’m not sure how we do better except to increase taxes and wring out efficiencies in the big budget items— we pay more for everything such as all aspects of healthcare and military technology for example.
Remind me why we have to worry about this?
> assuming huge economic growth?
I agree that assuming huge economic growth is problematic. But policies that enhance economic growth are essential. It's a standard meme in Silicon Valley that rising revenues solve all budget problems.
What we really need is a menu of tax revenue increase options to choose from. Restoring corporate income tax rates back to their 2016 level would generate about $130B per year. Restoring tax rates on long term capital gains and dividends would add in another chunk, making capital gains and dividends just another form of income would be even better. Raising taxes on the 1% would net another chunk. Establishing a minimum global tax on corporate profits would also help.
Policies that improve home ownership, child welfare, education, and health care help improve economic growth by making the essential component of economic growth, labor, more productive. Biden's industrial policy to onshore manufacturing of high technology goods is also critical for economic growth.
Increasing the nationwide minimum wage not only increases employee productivity, but also improves market efficiency. Corporations don't want to invest because the American middle class doesn't have enough to spend. Improving the spending power of the middle class would increase the gdp growth rate.
Limiting military spending to 3% of gdp would help at the margins, and perhaps promote efficiency gains.
> ¹That's a one-third increase in taxes. It's a lot! Much of it can come from increased taxes on the rich, but probably not all of it.
This sounds like bullshit to me. As near as I can tell, the current after tax disposable income of the top 1% is 16 times as much as the after tax disposable income of the top 25%. You could double taxes on the 1%, and their disposable income would still be 7 times higher.
It could all come out of the top 1%. Consider a few things:
1. From the early 1940s until the late 70s/early 80s, the bottom 90% of households had around 60 to 65% of all personal income. The average was about 63% and it had been growing over time; in 1970 you'd have predicted it to be over 65% by now. Last I saw they (we) were under 50%. That's a shift of about $3.2 T/yr from the bottom 90% to the top 1%. But the 91 to 95% people haven't been untouched. You've got to get to the 98% percentile to get the same share of personal income today that they had 40 or 50 years ago. So let's call it $4T/yr we should aim to tax from the top 1% for the next 25 years just to make things even. (Yes, I want to claw back the $50T plus (with interest) that they moved from the rest of us to them.)
2. Rich people in the 1950s had effective federal tax rates of over 50%. The rate last year for the top 1% was 26.3%. Doubling their effective rate back to what it was 70 years ago could pull in another Trillion.
3. Rich people today are much, much richer in inflation adjusted dollars than they were in the 1950s and 60s when they paid higher tax rates. So much richer that they engage in elaborate schemes to avoid any taxable income they can. Corporate stock buy-backs were illegal until the 1980s, but they are common today as a way to make the rich richer without pesky taxes on dividends. High effective tax rates would lead them to realize more income to pay for their lifestyles and yield more taxes yet.
4. High corporate taxes result in higher employment, more R&D spending, and more capital investment. Low taxes mean you can afford to spend the money on stock buy-backs and dividends. Most corporate stock is owned by the rich. Tax corporations more.
(Note that the top 0.1% are enormously wealthier than those who just make it into the top 1%.)
Kevin's looking for a lousy $1.7T/yr to balance the budget. Eat the rich.
Those categories may be a little nebulous. If I recall correctly “domestic” includes the Department of Energy, a large portion of whose budget is military
can you balance the budget.
sure!!!
just add another 100% to the 300% tariffs Trump will impose om foreign imports,
.
Problem solved!!
Next.............../s
Ps DJT closed at $12.15/share