Monday, November 8, 2010

Now I don't want to get cross wise with Hags

Not realy cross wise, more as an starting point with our liberal brethern.

So, you guys want to tax the high earners to "make" $130B, and keep passing on our specific suggestions of spending cuts because...and boy have we heard this a lot...those cuts won't make a dent in the deficit.

OK.. but it is a start.

So, yes, Mr. Hags we can "grow" the economy but let's cut some spending.  You know, the department of energy, earmarks, PBS  all that crap

and Rich, if, and granted it is a big if speculating if your party would ever put country before politics, they cut some and we were still short, heck, even we rational conservatives might give a listen to taxes.


Hags said...

I'm not sure if you read carefully what I wrote. I did speak of raising SS retirement age and means testing such programs at some income level.

However, I do not favor raising any taxes on anyone, nor do I believe it is necessary. I believe the system and especially Statists (don't you like that term better than Liberals or Progresives... it is so much more to the point) are running a great con on the public. Here is my bottom line: with policies that stimulate growth there is NO NEED FOR INCREASING TAXES . The exisiting tax structure can provide all the necessary revenue.

Here are some numbers. From 1947 through October 2010 the US GDP grew at an inflation adjusted rate of 3.31%. The CBO is using much lower numbers for future growth, thereby creating huge future deficits that need not come true. The CBO is using a growth rate of 2.4% as the nominal future grwoth rate. Over a 50 year period the difference is dramatic and important. 1.0331 to the 50th power is 5.0947 whereas 1.024 to the 50th is 3.2734, meaning that the economy would generate 55% more if it simply replicates our historical growth rate, and presumably, the government would harvest 55% more revenue from the existing tax structure.

Some projections regarding SS deficits assume growth rates of 2.2%, in which case the difference is 71%. That is the con. Statists who say tax increases are necessary love projections of bogus deficits.

Growth is the key. There is no reason growth cannot continue as in the past. In fact, given advances in technology we can do better. But we must channel Reagan and get the "gubment" off the backs of the American people.

OBTW, I do believe in spending cuts when it comes to stupid spending, but NPR isn't a meaningful problem. Save your energy and political capital for those things that matter most.

All the best,


Baxter said...

Hags -

"We'll grow our way out of the deficit" is the canard that the supply-siders have used as they have cut taxes and created our structural deficit. Last year, Americans paid they lowest level of taxes since 1950. Oh - and we had a $1.4T deficit.

The size of the GDP is such that you can always bump baseline growth estimates 38% +/- and "solve the problem" on paper. Further, your optimistic solution would take decades to bring revenue in line as debt piled up and interest costs exploded. We can't get there from here.

Unfortunately, demographics are not on our side either. Aging boomers cost the Treasury money, thanks to Social Security and Medicare. They do not do much for growth - they are past the family formation and earning years. The post war period was utterly primed for growth due to very powerful demographic trends. Those growth tailwinds now become headwinds as the boomers hit the retirement years in earnest. Frankly, the CBO may be optimistic forecasting 2.4% growth.

We balanced our budget 4 years after the Democrats passed 1993 Budget Bill without one Republican vote. This bill raised taxes and controlled the growth of spending. It maintained Bush Sr's Pay/Go discipline. It was a politically painful approach that worked.

We DESPERATELY NEED INCREASED TAXES once the economy is up and running again. The fiscal train wreck that we all saw coming is here.

Hags said...

Just to be clear, at the historical GDP growth rate of 3.31% all deficits are erased in less than 20 years without tax cuts. I think (meaning I am not certain) that may require some correction in the recent Obamacare package, but the concept is that growth can provide more than enough revenue to cover our future needs. And growth is fostered by lower taxes, not higher taxes. I am not promoting tax cuts. Simply extend the existing tax rates.

I do think there are more sensible and efficient methods of tax collection, but right now I'll settle for the status quo rather than fall for the Statists' BS about raising taxes to offset deficits. That approach is a death spiral.



Baxter said...

Hags - I appreciate your points.

Frankly, we do not have twenty years to balance the budget. I am amazed that we have been able to continue selling bonds at tiny yields with our fiscal fundamentals so screwed up. Further - our political system is not working, due largely to Senate rules that need changing with the next Congress (I know it's not going to happen). I have long thought that we'd solve these structural problems just in the nick of time, if not a little sooner. Well - pending the Debt Commission and the Lame Duck - I am growing much more pessimistic.

I too am worried about a "death spiral", but not in the event of higher taxes since we are starting off at a very low point relative to the rest of the world. We can raise our tax bite 50% and remain on the low end of the tax scale.

I am worried that US bonds will quickly fall out of favor, requiring ever higher interest rates to sell the paper. This, of course, would add tens of billions - if not hundreds of billions - to federal expenditures annually, which will then damage our bond sales all the more. Thus, the death spiral is engaged.

What then? We will be in very dire straights as meaningful spending cuts or tax hikes will then be counter-productive, depressing the growth that you described. We will then be in a crippling debt trap, which will hand the reigns of global leadership to stronger hands. We will have to solve our problems on someone else's terms and it will be very ugly.

Whatever approach is used, we need to balance the budget as quickly as possible. Time is not on our side.