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Flat Tax, Easy Tax
Posted by: Jon Henke on Wednesday, January 11, 2006

I've previously discussed me idea for three steps to a more limited government. Of those, the second plank is a Price Mechanism. A price mechanism would bring home the costs of government largesse and inefficiency to taxpayers by making taxation correspond to spending in a way that would affect every voter and prevent special interests from soaking everybody else unawares.

This could be accomplished via a flat tax among other ways and, contrary to popular criticism, such a system could still be effectively progressive. In fact, it could be more effectively progressive than our current tax system, but let's leave that for another time.

I bring that up because of a recent report from The Tax Foundation.... (via Hit and Run)
In 2005, taxpayers will pay roughly $1.2 trillion in federal income taxes. But America’s tax burden is more than just the amount of tax paid. It also includes the cost of complying with federal taxes, including tax planning, paperwork and other hassles caused by tax complexity.
...
In 2005 individuals, businesses and nonprofits will spend an estimated 6 billion hours complying with the federal income tax code, with an estimated compliance cost of over $265.1 billion. This amounts to imposing a 22-cent tax compliance surcharge for every dollar the income tax system collects. Projections show that by 2015 the compliance cost will grow to $482.7 billion.
What's more, compliance costs are "highly regressive, taking a larger toll on low-income taxpayers as a percentage of income". That's an awful lot of waste. (and unfair to the poor, too, if you're into that sort of thing)

A change in the tax code could not only implement a price mechanism and be more effectively progressive, it could also sharply reduce these transaction costs.

Careful, though: simply shifting to a flat tax rate would not reduce the transaction costs appreciably; whether there is one tax bracket or five, after all, one only needs to know simple division. The savings in transaction costs would come in eliminating tax loopholes, shelters and other avoidance incentivizing mechanisms.

Flatten, lower, broaden. We could save a lot of time, money and heartache, and we might even break the vicious cycle of tax reform — described by Christian Sandstrom in this New Libertarian article — in which tax simplification is invariably followed by politicians granting loopholes to rent-seekers and, after a time, another round of tax simplification.

Change the incentives and you'll change the government. Institute a price mechanism and the nature of the debate will shift inexorably to the benefit of those interested in cutting government waste.
 
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As part of such a reform, I’d also like to see an itemized statement sent to every taxpayer that details how much he personally paid for each Federal budget item and its share of his total tax.

 
Written By: Unknown
URL: http://
"Geezers are now voting themselves Medicare diapers and their grandchildren, who can’t vote, must pay the bill."

Well Book, we can always ditch Medicare. 8^} Deficit spending is a garranteed spending cut as much as it’s a garranteed tax increase.

Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://
Numbers make my head hurt, but I have read that the "Fair Tax" has some rather high transition costs attached to it. Also, a fair/flat tax is going to have a HUGE percentatge attached to it, which will give the voting public and Congress "Sticker shock."
 
Written By: Joe
URL: http://
Flattening the income tax rates produces a trivial simplification. Merging FICA, Medicare, unemployment insurance and the income tax into a single tax would be a bigger transaction cost savings. But even there, we still have the government needing to know the income of every business. This means that every sole proprietorship needs to use corporate strength accounting methods. This reduces one of the advantages that Mom and Pop have over Wal Mart.


How about user fees for government? You want copyright protection? Pay for it. Ditto for patents, corporate charters, trademarks, FCC spectrum, etc. No tax = no government service (i.e., enforcement).


Unfortunately, the Libertarian Party is still set on no new taxes, even if they replace old ones. Ironically, the Libertarian Party stands for keeping the income tax! At least, keeping it until the federal government can subsist on tariffs and a few of the existing excise taxes. Wait a minute! The LP wants to get rid of tariffs as well!

 
Written By: Carl Milsted
URL: http://www.ReformTheLP.org
"It is easier to put a camel through the eye of a needle than for a rich man to enter the kingdom of heaven."

Jesus Christ....

Now perhaps you guys could enlighten me. If you make, I dont know, 24 million dollars a year, what difference would another million dollars make to your life style? A lot of people have to survive on less than 15,000 dollars a year. If you had to struggle on a paltry 24 million instead of 25 million would it require that you eat your housepets to survive? I have heard all of the numerical arguements about the percentage of total tax revenue paid by the wealthy,blah blah blah... What I can’t ,for the life of me, understand why the only thing someone who makes 500-1000% the salary of the average worker can think about is how to get MORE. On top of that they claim to support a culture of Christianity when they vote conservative. Jesus was pretty clear about where the greedy end up.
 
Written By: corky
URL: http://
Corky, you may have heard of this thing, the Stock Market.... You see in this life the extra $1 million can go to a number of different areas. Let us choose for simplicity’s sake, that there are two, the Stock Market or The Guv’mint. The guv’mint has a very low multiplier effect, that is $1 to guv’mint generates very little additional money, WHEREAS, the Stock Market has a much LARGER multiplier effect. So if I invest the excess $1 million in the guv’mint the overall effect on the economy is small, whereas if I invest it in the Stock Market, the effect is greater.

And that’s where YOU come in, Corky. YOU ae a part of that larger economy and if it prospers YOU prosper...So it’s to YOUR benefit that Bill Gates keeps that extra $1 million rather than Dubya or Harry Reid getting it.

Also, it’s a moral question. Who’se money is it ANYWAY? Why does Dubya or Harry Reid have a claim on MY money or YOURS? Now I am no Anarcho-Capitalist, but explain to me why I am supposed to AUTOMATICALLY shell out money to you and yours, thru the offices of the government? I am supposed to rear and educate my children AND YOURS? Excuse me, I have to your job, too? Please explain.
 
Written By: Joe
URL: http://
Why not make getting rid of loopholes a seperate issue from the flat tax issue? Yes both are tax reform, but that way you can get the cleanup and reduction of overhead/transaction costs without getting side tracked into the whole progressive taxation debate.
 
Written By: Tito
URL: http://
corky illustrates why it’s okay for a liberal to impose Christian values on everyone else, but not for a conservative to do so.

The point isn’t whether someone making $24 million a year would notice another million, the point is whether he earned his money honestly. By what right, corky, do you claim a higher percentage of someone’s honestly-earned income just because he makes more than you do?
 
Written By: Steverino
URL: http://steverino.journalspace.com
The lion’s share of the ’transaction costs’ comes from the need to define ’income’ and ’deduction’ for individuals and ’expense’ for corporations... and that is not going to go away under any type of income-based tax system.

Yes, if you get rid of ’deductions’, you’ll simplify things somewhat on an individual basis, but you’ll have to deal with the public’s reaction at seeing eliminated their deductions for mortgage interest, state taxes, child care expenses, medical expenses, casualty losses (know anybody in New Orleans looking to write off some losses?), and unreimbursed business expenses, to name just a few. Keep in mind the public thinks the hours spent on these deductions is well worth the tax savings they realize, for if they didn’t think they were worth the time, they wouldn’t bother listing them on their returns.

And you’ll still have all the pages and pages of code on defining and recognizing income.... for categories such as investment income (not just the amount realized, but the basis in that investment also needs to be calculated in order to determine net income) and income from rental properties (factoring in maintenence expenses, depreciation, capital improvements -vs- currently deductible expenses), to name just two, are a bit more complicated than reporting wage income.

And there is no way Congress will, or should, eliminate ’expenses’ from the calculation of corporate income taxes... as a tax based on receipts is one of the more ludicrous things one could ever do.... so corporations will continue to spend thousands of hours on their ’compliance’ with the tax code.

Other than that, it’s a great idea.
 
Written By: steve
URL: http://
Eliminate loop-holes first, and always.
The oft-ignored important part of Reagan’s tax-cuts were that he eliminated loopholes. That probably had as much or more to do with raising rax revenue as the Laffer Curve.
Then Clinton made the tax much more complicated. When I point out the Hope tax credit and Lifetime Learning tax break, even some libertarians disagree, saying they couldn’t afford college without it. Just another case of people liking it when they get the pork...
But I digress.
Democrats like to blame Republicans for wanting to give tax-breaks to their rich friends. One of the other oft-ignored things about taxation is that Democrats like taxes that are apparently really high for rich people, but in reality contain so many loopholes that their rich friends still don’t pay anything.
It’s a shell-game folks. And if you aren’t rich, the Democrats want to screw you even worse than Republicans. Why do you think the ultra-rich like Bill Gates, Ted Turner, Barbara Streisand, George Soros, etc are liberal, anyway???

Here endeth the rant.
 
Written By: Nathan
URL: http://brain.mu.nu/
How about user fees for government? You want copyright protection? Pay for it. Ditto for patents, corporate charters, trademarks, FCC spectrum, etc. No tax = no government service (i.e., enforcement).
These things are paid for by the users. In fact, IIRC, the Patent Office is the only federal agency that actually payys for itself, and turns somewhat of a profit.
 
Written By: MichaelW
URL: http://
If the goals of tax reform are simplification and aligning incentives, one idea for corporate taxpayers is to use GAAP net income as the taxable income number. Gets rid of companies having to keep two (at least) sets of books and maintains incentives to increase income. Won’t happen though, because the tax provision is one of the great ways companies can smooth earnings, and they won’t want to give that up.
 
Written By: Steven Donegal
URL: http://
The oft-ignored important part of Reagan’s tax-cuts were that he eliminated loopholes. That probably had as much or more to do with raising rax revenue as the Laffer Curve.
Sorry, got to disagree with you there, lowering the marginal rate from 70% to 28% was pretty freakin huge! Also, there wasn’t much tax simpification in that act, the simplification came with the tax act of 1986.

At any rate, I am all for some simplification, but I am dubious about the value of getting rid of all the so called loopholes. If you get rid of mortgage interest deduction for instance you could wreck the real estate market, and cause havok just like the aforementioned tax act of 1986 did. Any one remember the S&L crises?

http://impudent.blognation.us/blog
 
Written By: Kyle N
URL: http://
Can we add a fourth step that prevents the unborn from being taxed by deficit spending?
My third step would be a "consequence" measure, which would ensure that deficits are met by mandatory offsets outside of (declared) wartime emergencies. I hadn’t developed it well, but I’d like to see somewhere mandatory across the board spending cuts kick in at deficits of around 2% (which would give us enough leeway for fiscal stimulus in recessions).
Numbers make my head hurt, but I have read that the "Fair Tax" has some rather high transition costs attached to it. Also, a fair/flat tax is going to have a HUGE percentatge attached to it, which will give the voting public and Congress "Sticker shock."
The FAIR tax, yes. You’d see an enormous — and, frankly, unworkable — sales tax. I’m not suggesting that, though. The level of a flat tax would pretty much depend on how broad it was, and how effective politicians were at getting rid of loopholes.
Flattening the income tax rates produces a trivial simplification.
Yes, I think I mentioned that in the post.
How about user fees for government?
Since you bring it up, yes, I’d favor that. Hell, that’d be a libertarian wet dream and economically efficient to boot. Wherever possible — i.e., roads, patents, post office, etc — I favor instituting user fees and connecting the cost as closely as possible to the benefit — price to usage. That still leaves a lot of areas which are, frankly, not conducive to user fees, though. In those areas, my own preference would be to have the taxes paid and services rendered at the lowest level of government possible.
If you make, I dont know, 24 million dollars a year, what difference would another million dollars make to your life style?
You’re looking at this from exactly the wrong way. Forget what somebody would do with an extra million after they’ve already earned it. By that time, the productive behaviour has already happened. Ask yourself how people will behave in the face of different incentives. If you lower the return on investment by 10%, what percentage of total investment will be diverted elsewhere?

If you take 1 million dollars from people doing something productive for society and give it to people doing nothing productive for society, you’ll inevitably get less productive behaviour and more unproductive behaviour. (that’s a broad simplification, but it’s accurate)
 
Written By: Jon Henke
URL: http://www.QandO.net
Why not make getting rid of loopholes a seperate issue from the flat tax issue?
Read the New Libertarian story I linked above. It deals with that, to some degree. Ultimately, getting rid of tax breaks, exemptions, credit, etc is simply a tax hike. To get the Right to agree to that, you have to cut rates. To get the Left to agree to cut rates, you have to broaden the tax base. Etc.
These things are paid for by the users. In fact, IIRC, the Patent Office is the only federal agency that actually payys for itself, and turns somewhat of a profit.
Well, lately, the Post Office has been making a profit. But your point is taken.
 
Written By: Jon Henke
URL: http://www.QandO.net
Allow a large fixed dollar value personal and/or dependent exemption to an otherwise flat tax, and phase out all other deductions and exemptions. Accomplish the change by an amendment if possible so it can’t be easily overridden. Assume Congress continues to borrow money to meet expenditures. Then debt payments force spending cuts, with any associated tax increases ensuring pain enough to prevent the resumption of such spending in the future. Inflation concomitantly makes the tax fairly flat as the value of the deduction shrinks.

And I want a toilet made out of solid gold please.

Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://
Jon Henke wrote: "price to usage"

And the problem there is the the price should scale to value. The per usage rates somehow never seem to pay the bonds on toll roads, whose commisssions seem to go on forever while not serving their purpose.

Like the Louisiana levee committees.

Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://
Okay, my bad — per value of usage is what I meant.

Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://
Im Asking for Fair Tax, not flat. Neal Boortz.
 
Written By: Newc
URL: http://
Steven Donegal:

You think income on a GAAP basis is easy to figure out? In its own way, it’s just as complicated and convuluted as the tax code.

And companies don’t actually keep two sets of books... they start with their GAAP numbers and make a series of adjustments for tax purposes (eliminating 1/2 of travel and entertainment expenses, for example).
 
Written By: steve sturm
URL: http://thoughtsonline.blogspot.com/
"the second plank is a Price Mechanism. A price mechanism would bring home the costs of government largesse and inefficiency to taxpayers by making taxation correspond to spending in a way that would affect every voter and prevent special interests from soaking everybody else unawares. This could be accomplished via a flat tax ..."
I’m dumbass enough to just have put a response under the wrong post, and so am probably best ignored.

But nonetheless I’ll say it’s too late for such reform — earmarks and such budget issues are petty concerns (except as an ominous sign of the nature of our political culture), and no tax reform like a flat tax is going to work today because it’ll just get blown apart under the pressure of the big, really big revenue increase enactments coming in a few years.

This is, of course, because the 1,500 pound gorilla coming down the road that dwarfs all else is unfunded federal retiree benefit promises.

Counting these, the Treasury says the annual accruing budget deficit today is over $3 trillion with at "t". (The numbers, with link to Treasury report).

That’s 30% of national income — or near 50% of national income over what is already paid in taxes to support govt at all levels. To cover this with federal income taxes they’d have to be lifted to 3.6 times what they are now across-the-board — top rate 126% for both individuals and corporations. And since that’s rather on the wrong side of the Laffer Curve, that wouldn’t work either. So there’s going to be a great deal of reneging on promises to retirees, count on it.

Nevertheless, retirees will insist that a lot of those promises be kept, so there are going to be big, major, revenue raisers coming.

If Congress "splits the difference" — paying half the promised benefit increases, cutting half through means testing and reduced benefits for the younger (like it did for Social Security in 1983) then we’re talking like a 5%-of-GDP tax increase in the foreseeable future. That means either a really big income tax increase, like 60%, maybe too much to be plausible, or the addition of a VAT to the tax system (supplementing, not replacing the income tax.) Remember, this is with huge, blood-in-the-streets benefit cuts — e.g., cutting future Medicare spending by more than the total of Medicare spending today.

A flat tax reform today hasn’t a prayer of standing up to all this. And it’s too late for budgetary rules to control these promises, they’re already made.

The simple budgetary rule that would have controlled them is: The government uses GAAP accrual accounting, *and* it is required to fund future promised benefits as they are accrued with real economic savings funded via taxes. IOW, it is required to act like private firms are.

If entitlements had come with a bill real attached in the form of immediate tax increases — instead as being doled out as something-for-nothing vote buyers, with the politicians using them figuring they’ll be gone before the bill arrives — Ted Kennedy could never have created Medicare as we know it ... and Bush would never never never have added $8 trillion to its cost last year with the drug benefit.

"We Republicans are going to buy your vote with a new prescription drug benefit *and* a $560 billion tax increase right now in 2005 to pay for it on an actuarially sound basis!" Try to imagine THAT! ;-) A different world, and a better one.

But it’s too late, all these benefits are already promised and enacted. And in dollar terms, everything else is trivial.

Fundamentally, government budgeting reflect the popular political culture. The US culture was fundamentally pro-balanced budget and fiscal (and monetary) soundness until the Depression and New Deal changed it. FDR ran in 1932 on a "balance the budget by cutting government" platform (and in 1940 on a "no foreign wars" platform, but that’s another story).

The next change in culture figures to come in around 25 years, when cash flow forces the government to massively raise taxes and reneg on promises at the same time, really peeving voters into saying "never again".

But don’t count on seeing any real reform until cash flow forces it.
 
Written By: Jim Glass
URL: http://www.scrivener.net
I tend to agree with Jim. I think it will take a massive, unavoidable, can’t-pass-the-buck-this-time sort of financial catastrophe for meaningful significant change to occur. How many times in history can we point to humans taking significant proactive action to avert a crisis? It usually takes undeniable threat or catastrophe to move us to action.

If Jim is correct that were 25 years away from such an event, I’ll have already bid this place adieu for greener pastures. I have hope that other countries will learn from the upcoming failures of Europe and adjust while they still can. Wouldn’t it be ironic if Eastern Europe and the former Soviet countries become the new epicenter for freedom in the world?

At any rate, I’m guessing that several thousand, if not millions, of my fellow Americans will do likewise as they don’t have any interest in sacrificing everything they’ve worked for at the alter of several generations of selfish, arrogant, foolish politicians and the parasitic electorate who tolerated them. Atlas Shrugged was prophetic.

By the way Jim, loved this line:
"We Republicans are going to buy your vote with a new prescription drug benefit *and* a $560 billion tax increase right now in 2005 to pay for it on an actuarially sound basis!"
That certainly cuts to the moral and logical vacuousness at the core of the Republican party.
 
Written By: Unknown
URL: http://
And the problem there is the the price should scale to value.
Impossible. Short of conducting an auction for each individual usage, "individual value" would be impossible to determine. That’s why stores charge everybody the same price for a product, even though some people may assign it greater value than others.
Im Asking for Fair Tax, not flat.
Yeah, well, good luck with that. Aside from it being impossible to successfully implement, it’s a great plan.
 
Written By: Jon Henke
URL: http://www.QandO.net
earmarks and such budget issues are petty concerns
Relative to the larger entitlement issues, that’s true. But I think that a price mechanism would do more to solve the problem of entitlement largesse than it would to solve the problem of earmarks, because it would attach a clear, uniform, broadly spread cost to any large entitlement giveaway. Earmarks, on the other hand, are best addressed by Line Item Budgeting.
I’ll say it’s too late for such reform ... and no tax reform like a flat tax is going to work today because it’ll just get blown apart under the pressure of the big, really big revenue increase enactments coming in a few years.
It’s as good to raise a flat tax in a crisis as it is to raise that kind of money through a progressive tax. Good, because broad tax increases will prevent special interests from competing with each other to be winners and losers in the entitlement VS taxes battle.

Another point: I agree that we’re likely to see some mix of tax hikes + entitlement cuts in the future. However, I think one of the changes will be a shift to universal health care, which will really change the picture on the medicare deficit front. Granted, taxes will have to go up for that, but I’m not sure what the longterm effect will be.
Counting these, the Treasury says the annual accruing budget deficit today is over $3 trillion with at "t". (The numbers, with link to Treasury report).
3 trillion dollars in obligations is not going to come due in a single year. How does the 3 trillion in obligations compare to the GDP over the course of the years in which the obligation will come due?
If entitlements had come with a bill real attached in the form of immediate tax increases ... Ted Kennedy could never have created Medicare as we know it ... and Bush would never never never have added $8 trillion to its cost last year with the drug benefit.
Indeed. And I’d like to have such a mechanism in place going forward.
 
Written By: Jon Henke
URL: http://www.QandO.net
"Impossible."
Well you are half right.

"Short of conducting an auction for each individual usage, "individual value" would be impossible to determine. That’s why stores charge everybody the same price for a product, even though some people may assign it greater value than others."

People who are buying a store’s product at a particular prices obviously think it is at least worth it at that price, or they wouldn’t buy it. It’s possible they think it’s underpriced and they’re getting a real deal, but then they usually buy more than they would otherwise, the thing gets scarce, and prices rise. Life actually does work that way.

Also.

I didn’t say individual did I? Neither did I mean it. Aggregate supply, pricing, and demand are what are used to calculate such things, because the cost of doing so individually is a real cost, and makes doing pricing on an indivudal basis generally uneconomic. That is not a market failure, or an inefficiency, it is merely the prevailing condition given the current transactions costs possible, and those are real costs. Someone who can figure out how to lower such costs enough will make a mint.

For the time, like any other free market captialist enterprise, it will not be impossible for a government usage fee to reflect the aggregate value to the public of the service—or like a doomed venture, the service should be halted. That would not, for example, be a market failure any more than a business closing is a market failure instead of a failed entrepeneurial effort.

Im Asking for Fair Tax, not flat.

Yeah, well, good luck with that. Aside from it being impossible to successfully implement, it’s a great plan.
Well, I hope the toilet made out of solid gold crack reflects my realistic pessimism, but improvements can happen, a la Reagan’s simplification.

That the fairness of taxes will cyclically degrade does not mean improvement is impossible.

Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://
Agreed earmarks are a relatively petty concern, but they’re what individual congresscritters are responsible for much more so than the systemic, entitlements problems—those have generally FDR, Johnson, and the stupidity of the general public as the main culpable people. Either the folks to blame there are too numerous and diffuse or they’re dead already.

I don’t like Bush’s prescription drug entitlement, but I’s hoped I’d get tax and or social security reform in exchange.

"Granted, taxes will have to go up for that, but I’m not sure what the longterm effect will be."

Healthcare will be less satisfactory, there will be more government intervention in unhealthy vices which should be personal choices, healthcare will cost more for what you get, and/or will be opportunity rationed so that some people die while waiting for too inexpensive but rare services.

It will be a dull gray disaster.

Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://
Yes, obviously I’d like to have a system where user fees were sufficient to cover costs in some areas. Again, for example, roads. Government being a monopoly supplier, though, I’m not sure that we necessarily want to search for a market clearing price.
Well, I hope the toilet made out of solid gold crack reflects my realistic pessimism, but improvements can happen, a la Reagan’s simplification.
Yes, improvements can be made. However, the problem with the FairTax has nothing to do with potential degradation or with political impracticality, and everything to do with economic impracticality. To make Fairtax work in theory, you’d need tax rates so high that the FairTax could not possibly work in practice.
 
Written By: Jon Henke
URL: http://www.QandO.net
The fair tax is I think not synonymous with the flat tax, or even a single bracket tax. In fact I think the "Fair Tax" (tm) is a damn sales tax.

Book wrote:
"Keeping our families safe during the collapse is the only rational assignment. Nothing un-Libertarian about that."
Astonishingly enough, agreed.

Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://
I should amplify, I meant in previous posts a more fair, lower case, tax. Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://
"notherbob,
For the record I am not a liberal. Labeling yourself is for fundies and cultist’s.
Posting on Q and O is sort of like talking to yourself. There was no one there."
See Corky’s comment above. I commented on David Corn’s blog, asking any “principled leftists” with an interest to drop in on QandO. Corky did. Now she is back on Corn (see quote above) getting a group hug and commenting with a breathless tale of the encounter with those cultist libertarians. Sigh. If this process demonstrates how she informs herself on the world, one can understand how she remains a committed liberal airhead. Although, like Corky, I visited, read and commented on a strange (Corn’s) blog, I simply have the same opinion of it (and other liberal cocoon blogs) that I had before. It is in the liberal cocoon. No other viewpoints welcome. As a matter of fact, I was invited to leave by one regular commenter. Much of the posting I read while there was a version of: “My, how I agree with what you said. You are so astute. And I am astute too, because I think you are so right. And isn’t it nice that David agrees with us? Don’t we all agree that we have this issue right, only some are more right than others.” Meanwhile, the real world passes by. It would be amusing if these cocooned liberals didn’t vote.
 
Written By: Notherbob2
URL: http://
"3 trillion dollars in obligations is not going to come due in a single year."
No, but it’s accumulating every year and is up to about $50 trillion today.

Steven Colbert actually had the numbers and their breakdown right last night on the Colbert Report, in his lead story about how the sexagaterrorists of al-AARPa are threatening America. So the true story is getting out! At least on the Comedy Channel.
"How does the 3 trillion in obligations compare to the GDP over the course of the years in which the obligation will come due?"
We’re talking of increasing federal expenditures by more than 10 points of GDP under current law, when the boomers retire in numbers.

Look at the charts in this GAO report (pdf). Like figure 4: Medicare, Medicaid and SS rise from about 8 points today to over 20 points — larger than the entire federal gov’t today — by 2050 (and are still rising).

That gap — 12 points of GDP — will have to be closed by a combination of tax increases and benefit cuts as a matter or arithmetic, there is no third choice. Total federal income taxes were 8.5% of GDP in 2004, so that’s the scale of things.

The study notes that borrowing (the third option) to finance the gap would lead to annual cash deficits by around 2045 larger than 20% of GDP (the entire size of federal gov’t today) and rocketing straight up due to compound interest, and ends projections there as "the end of government". Borrowing in reality of course resolves fully into tax increases because the debt incurred must be serviced with taxes.

Note that this study is very optimistic and rosy, because it is year 2000 data — pre-Bush (tax cuts and Medicare drug benefit) and pre-recession, and it counts trillions of dollars of surpluses that never were.

So today’s reality is significantly worse than what it projects.
 
Written By: Jim Glass
URL: http://www.scrivener.net
Well Jim, barring a demographic miracle—which would be horrible, "Where’s Grandma?!"—or a serious flaw in the numbers going into those figures, we know where the hard stop is. 2045 or so.

Right about when I might otherwise want to retire, or even be unable to work owing to age, health depending.

Yippee.

And that drip Pogue over on the other thread can’t bear to look hard at Socialist Insecurity.

Sigh.

Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://
Note that this study is very optimistic and rosy, because it is year 2000 data ...
For those interested in current projections the CBO just released a new analysis, "The Long-Term Budget Outlook", Dec. ’05.

At its release CBO Director Douglas Holtz-Eakin addressed the idea that economic growth is the solution to the issues described therein: "It’s not possible. Don’t even think about it. You can’t grow your way out of this problem. It’s just too big."

Read and enjoy. ;-)
 
Written By: Jim Glass
URL: http://www.scrivener.net
Oh my. Corky’s latest comment on Corn reveals that she is not a liberal airhead so much as just an airhead. Who knew? Still, pinning my charges on such a fool is not nailing a liberal (my favorite sport). On top of that, she appears to be a well-meaning fool. Ah well, some days are like that. Best wishes to Corky.
 
Written By: Notherbob2
URL: http://

 
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