If only rich people and corporations payed taxes, just a 15% flat tax across the board and all the loop holes gone. The debt would turn into a surplus......
People that call for “the rich” to pay more taxes usually mean those earning above 100k. At least thats how it is in the uk. At some point it will become more convenient to just earn a low wage or none at all.
It’s not just income tax. You lose certain allowances when your salary exceeds a certain level, such as childcare. There definitely are scenarios when a pay rise can actually make you poorer.
Really? You'd rather earn less than earn more and pay tax on some of it? Personally I'd go for earning more (if it's a choice) and paying the higher taxes instead of voluntarily lowering my income.
Not everyone wants to constantly earn more money. Especially when the government will steal a portion of it for themselves. If the work to benefit ratio is not good people are not going to bother earning more. If society only pays 10% more for 100% more effort people are not incentivized to do it.
It’s about the incentives and marginal change. Sure, you’d go for earning more, but now you’re less incentivized to do so. It might not matter to you, but it matters to the people at the margins — the people who are just on the edge of being willing to make an upward move but will decline to do so if their potential gross is lower than it otherwise could’ve been.
Being less motivated to push for higher income is a far cry from deciding you don't want it and would rather have a lower income.
Also I haven't seen any plans that would remove particularly much motivation below a million dollars, and by the time you're making a million dollars I wouldn't say there needs to be motivation to go for more.
The problem in the parent's post is that people advocating for "taxing the rich" aren't actually talking about people who are being payed $100K. They are talking about people whose wealth comes from owning property.
In that case, I'm not sure that our intuition about the effect of marginal incentives necessarily applies to the same degree. E.g. if a wealthy industrialist decides not to invest in a some piece of capital, it's not as though the capital ceases to exist; it will just be used by someone else. E.g. if an industrialist decides not to invest in a gold mine, then it's not as though the gold disappears. The land will simply be developed by someone else.
I (UK) contribute the majority of my salary to my pension; as much as it makes sense to do. As far as the taxman is concerned it’s not income and so I drop down tax bands. My take-home is less, but my overall wealth is higher.
It’s true that I may never see that pension, but money given to the taxman is money I’ll never see again anyway.
I don't think you will find many people advocating that the relevant point be 100K. Even setting aside that many people are advocating wealth taxes rather than income taxes, the breakpoints I see advocated for increased income taxes are generally 250K or 400K.
>People that call for “the rich” to pay more taxes usually mean those earning above 100k.
Good Lord, 100k? I was making more than that in 1999. When I say rich, I am saying anyone who makes more than 1 - 1.5 million a year. 100k is just over poverty these days...
That depends on whether the median person is living in poverty or not. There are definitely places in the US where it would be very difficult to raise a family or buy a home on the median income.
> That depends on whether the median person is living in poverty or not.
Well, no, even if we stretched the definition of poverty to cover people making the national median personal income, people making 2.5× that still wouldn’t be in or just over poverty, but, sure, if you redefine poverty to include the wealthy than the wealthy are “poor”. But there are people actually in poverty by its common definition, and people making $100k/yr—which was asserted to be on the edge of poverty generally these days upthread—have more in common with people making $1 million/yr than with those people in actual poverty.
> There are definitely places in the US where it would be very difficult to raise a family or buy a home on the median income.
“It’s difficult to buy a home” isn’t poverty, and the subject wasn't people earning the median personal income but $100k/yr.
> To wit, “The Stat” is that the highest-earning one percent of taxpayers pay 40 percent of all income taxes. […] The first problem with The Stat is that it makes no reference to the proportion of income the rich earn. The juxtaposition between one percent and 40 percent is meant to convey the idea that a small number of people are carrying a gigantic and disproportionate burden, but the figure lacks any context when it omits how much money they earn in the first place.
> Indeed, it turns the fact that rich people account for a massive share of the income pool into a reason to see them as mistreated. One common move for polemicists brandishing this figure is to note that the share of taxes paid by the rich is “up sharply” over the past couple decades — which it is, on account of rich people claiming a larger share of the national income. The logic implied by The Stat is that the bigger the proportion of income earned by the richest one percent, the more imperative it is to reduce their tax rates, so that they don’t pay too high a share of the tax burden.
> Between 2014 and 2018, the 25 wealthiest Americans collectively earned $401bn, but paid just $13.6bn – about 3.4% of that – in taxes, according to a bombshell ProPublica investigation into the finances of the wealthiest Americans released on Wednesday.
[…]
> Billionaires in tech pay the lowest tax rate, an average of 17% of their income, largely because their wealth comes from such investment income. Bill Gates, whose income from 2013 to 2018 was an average of $2.85bn a year, paid an average effective federal income tax rate of 18.4%. Lauren Powell Jobs, the widow of Apple co-founder Steve Jobs, earned an average of $1.57bn and paid an average tax rate of 14.8%. Ten of the top 15 earners on the list are billionaires who made their money in tech.
> In comparison, the average single worker earning $45,000 paid an average tax rate of 21%. A married couple with one child who earns $200,000 paid a rate of 26%. In 2018, the highest top rate on ordinary income, which excludes investments, was 37%, yet the average tax rate for the 400 wealthiest Americans was 22% from 2013 to 2018.
When you grab most of the income generated in the economy (leaving little for the folks at the bottom), then of course you pay most of the income taxes.
33 trillion dollars is a lot of money. Even unresonable levels of tax expansion across the would take forever to make that back, not to mention that that doest stop additional spending which still would likely be in excess of what we would collect extra.
The effective tax rate for the rich has stayed very flat over time, and it has never been 90%. That is an internet myth that is somehow floated around that most people don't bother to check up on.
That conflates capital gains and income tax, which to be fair I didn’t specify. But yes, with capital gains rates, effective tax rates have gone down. Income tax mostly the same.
My take is that this is basically what inflation is. Use the money for something useful, or it becomes worthless.
This is basically the principal behind universal basic income; adding more money to the pool by sending everyone a monthly check devalues the existing supply of money. If you have a billion dollars stuck in a savings account, the purchasing power of that billion goes down, incentivizing you to use it on something useful. That hurts you more the more money you have. As for prices increasing because of inflation; that's the beauty of mailing everyone a check. That takes care of that problem at the level of basic needs (food, medical care, housing, transportation), but not at the level of private jet flights being subsidized.
A flat tax on... what? Income? What is income? Capital gains? Realised or unrealised capital gains? Also, what are "rich people"? Is it the "millionaires and billionaires" Bernie Sanders used to talk about before he became a millionaire himself or only the "billionaires" he now speaks about? Not to single out Sanders the question is an important one since one man's "rich man" is another man's servant. To the homeless bum on the street you will be "rich", to you Sanders is "rich", to Sanders Musk is ¨rich". Who gets to pay?
Flat taxes sound great in theory but they end up having a far larger impact on those for whom the tax directly cuts into their ability to pay for basic necessities. Will there be an minimum guaranteed spendable income limit below which the tax will not be taken?
The problem with that is not all labour is the same. Should a weathly farmer be taxed less than a hairdresser? It’s a more physically demanding and dangerous job.
Neither of them would meet that definition of "the rich" since they are both income gained through labor. Therefore, neither of them would have their taxes raised by a policy of "taxing the rich".
the "millionaires and billionaires" Bernie Sanders used to talk about before he became a millionaire himself
Eh, when the term "millionaire" was made, a million dollars was worth about 30x less.
We can't keep focusing on the number 1000000 forever when we have constant inflation. A million dollars isn't even enough to let the average person retire and have a median income lifestyle.
It is a point of view (a bias) to say that the deficit was largely caused by large spending bills such as ARPA, but not mention the equal or large contribution to the deficit of tax cuts, such as the 2017 Tax Cuts and Jobs Act.
President Donald Trump’s signature tax bill,26 enacted when Republicans gained control of the White House and both houses of Congress in 2017, will have cost roughly $1.7 trillion by the end of fiscal year 2023.
It seems pretty reasonable on magnitude grounds to mention something that cost $1.9 trillion in a single year while and omitting something that cost $1.7 trillion over five.
> Taken together, the Bush tax cuts, their bipartisan extensions, and the Trump tax cuts, have cost $10 trillion since their creation and are responsible for 57 percent of the increase in the debt ratio since then. They are responsible for more than 90 percent of the increase in the debt ratio if you exclude the one-time costs for responding to COVID-19 and the Great Recession.
I don't 100% agree with this article, but I think you are somewhat misrepresenting it. If taxes were at the level they used to be then we would be in a better position debt-wise than we are now. Whether you disagree with raising taxes or not, it does seem reasonable to examine cost-increasing measures like tax cuts.
If you are going to aggregate all the tax cuts going back to 2000, you could also aggregate all the spending increases. I don’t think either is a reasonable thing to do.
The OP article includes this paragraph:
“Getting the debt under control will require taking a serious look at health care, Social Security and the tax code,” CRFB president Maya MacGuineas said in a news release.
which mentions taxes.
I don’t see what the big problem is with specifically mentioning the ARPA given how absolutely enormous it was. My objection wouldn’t have been not mentioning specific tax cuts, but instead not mentioning CARES which was even larger at $2.2 trillion.
Congress needs to try harder and make it a constitutional amendment. The Supreme Court did in fact strike down income taxes until Congress managed to pass the sixteenth amendment and have it ratified by states.
It probably is currently. But it’s also a bad idea to entertain the alternative which is generational wealth is the only substantial wealth that is attainable.
> That’s more than cooking the economy , that is literally killing the American dream.
People past the 10 million $ mark have already succeeded at the American Dream - even at measly 1% return rates, they and their offspring don't have to work a single day in their lives again. They can be taxed without the economy even breaking into a sweat.
Personally, I think there should be a hard wealth cap at some point between 100M to 1 billion dollars. "Trickle down" has been proven to be outright bullshit, and the uber rich have political power similar to landed gentry, in some cases nearly as much as kings back in the days. It's enough.
It’s not about current millionaires it’s about people who, due to higher taxes, may never be able to accumulate that level of wealth due to starting with little before the taxes are changed.
I’m not sure if it encourages saving but I can’t think of another way to tackle the debt that is more fair to people starting out and that incentivizes people to participate in the economy.
It’s not a fair situation to anyone — honestly it is a sad scenario. To be clear a special assessment does not imply that a higher wealth person pays a higher percentage of their wealth. I am not advocating for that.
It should be pointed out that people who currently work hard aren’t rewarded the same way people were when a lower tax environment existed. Do you think that is fair , if the taxes were raised significantly to cover the debt ? Specifically debt that the government accumulated before you even entered the workforce.
The TJCA increased our deficit by 1.2% of GDP and the economy grew by 0.7 to 3.5% in the two years from when it passed to COVID making measurements meaningless.
Assuming the upper end of that and half the usual 2% YoY growth we paid 1.2% of our GDP for a 1% increase in growth... So literally nothing as reducing taxes causing an increase of the same amount in GDP isn't meaningful. And that is assuming some generous conditions.
In the 2022 US federal budget, out of the $6.3T worth of total spending, $4.1T was mandatory: Social Security, Medicare, Medicaid, etc. $1.7T was discretionary (top item being DoD), and $0.5T interest payments. Revenues were $4.9T.
Unclear. If structured as a promise, it could be considered backed by the full faith and credit of the United States. That’s Constitutionally protected.
Does that cover full implementation of the program? Medicare and medicaid (that, to be clear, I'd abolish in a heartbeat with only a transition period for readjustment) could simply be legislated into an unusable state. E.g. slash provider payouts by an order of magnitude and see how many doctors still accept it - nearly as good abolishing it.
There are ways around this. But things have gotten so bad that i think the US debt is now more of a government welfare program than actual debt. It is a way to shovel taxpayer dollars towards large note holders. It is just moving money around, a sort of reverse welfare. It is an american institution no more killable than medicare or charitable tax deductions.
The US effectively uses government debt to avoid large asset holders from eating up the entire money supply. Using deficit spending to redistribute funds works when the money hits the right places, and is horrendously inefficient otherwise.
If money isn’t debt it would be for example gold. So a person could hold all the gold in the world and in this sense also the power over money. Now money is there for the transfer between values so it represents the economics
> a person could hold all the gold in the world and in this sense also the power over money
Then something else becomes money. This has happened, in the past, when metal money was scarce. More realistically, if one person hoards a money, i.e. accumulates and doesn't meaningfully spend it, it gets taken.
Profits accumulate to asset holders, and individuals have a fundamental cap on how much they can rationally spend. If individual asset holders have too much capital - then there won't be enough spending to keep the economy moving, resulting in deflation. Even in the case that large asset holders are efficiently lending capital, this situation can occur due to interest payments.
The US Government effectively acts as the borrower of last resort in this situation by being the only place where a large asset holder can safely store capital and spending the borrowed capital. It would be possible to perform the same activity with taxation, or policy decisions that raise the base wage in the economy, or by simply printing more money - but the activity must be done to prevent deflationary spirals from occurring.
Printing money comes with the con that asset holders will end up with more capital. Unfortunately, there is no guarantee that such holders remain obligatory savers, and they may begin engaging in irrational spending.
The way I look at it, we (us in the US) aren’t willing to pay enough in taxes to cover our expenses, so instead we pay in interest, and by extension, inflation.
And a huge amount of public debt matures in the next 1-2 years, e.g. it's $7.6T (31%) just in the next year [1]. Imagine how the interest will balloon after this debt will be re-borrowed with the current interest rate. The recent spike in long-term rates does not help to say the least.
I expect the Fed will drop the interest rate and/or will re-start QE somewhere in the next year, so expect new waves of inflation similar to 70s.
> I expect the Fed will drop the interest rate and/or will re-start QE somewhere in the next year, so expect new waves of inflation similar to 70s
Side note, this has been Silicon Valley's take for a decade. It's wrong. It results from a series of fundamental misunderstanding that caught start-ups, VCs and even Silicon Valley Bank flat footed by the Fed's rate rises occurring and persisting.
Yes, many analysts have expected this to happen this year, but they underestimated stimulating effect of the COVID stimulus checks and the huge deficit spending by the government (e.g. Inflation Reduction Act, lol).
To be fair, the banking system has started breaking, but, instead of lowering the rate, the Fed has temporarily masked it by the BTFP. When the program will end, banks will end up with huge holes in their balance sheets (discounted paper + accumulated interest on BTFP funds). So we either end up with a huge banking crisis, or the Fed will prolong the program, thus effectively making it a form of QE.
> many analysts have expected this to happen this year
They expected the economy to cool thereby causing rates to fall. Because what we're going through--rising rates, falling inflation and persistent growth--is literally the first time an economy of note has managed the opposite of stagflation.
The Fed being constrained by the federal deficit (or even interest expenditure) is a different beast. Nobody serious thinks the Fed would lower rates to finance the government thereby causing inflation. If the Fed is lowering rates, the economy is cooling. That's deflationary. If the economy is doing well enough that lowering rates would cause inflation, there is no need to lower rates.
Stagflation is real. But it's never happened in the way this theory describes (deficits --> lower rates --> inflation amidst recession). And there are simple, well-tested reasons to find that causation ridiculous.
> banks will end up with huge holes in their balance sheets
It's a trivial hole to fill: let banks borrow at the discount window against the face instead of market value of their Treasuries. (At a penalty rate, I would add.)
The persistent problems in banking come from credit risk. That's happening in commercial real estate. But not rates.
Yes, the Fed is independent and it should not care about fiscal deficits. On the paper. But the recent history shows that in practice it plays a bit differently... Also, there is a very enticing (for the government) example of Japan where BoJ effectively owns almost all of the Japanese government debt. Do not forget, that if things will get bad enough the Congress can always re-write the Federal Reverse Act.
>If the economy is doing well enough that lowering rates would cause inflation, there is no need to lower rates.
I am not naive enough to believe into the soft and no-landing scenarios. The gradual yield curve uninversion points to incoming recession. Huge fiscal deficits contribute to it, since without QE they cause crowding out of private debt markets.
>Just let banks borrow at the discount window against the face instead of market value of their Treasuries.
And, as I've said, it becomes another form of QE. If you set the penalty rate on the level of the current Fed rate, eventually banks will fail, since they can give enough loans at such rates and deposits actively flee into treasures and MMFs. And using lower rates will be rightfully seen as yet another bailout of banks.
> On the paper. But the recent history shows that in practice it plays a bit differently
What history? When did the Fed ever lower rates because of the deficit?
> Japan where BoJ effectively owns almost all of the Japanese government debt.
Help me understand why a large holder of debt would want it to pay less? (Also, Japan is a bad model for America.)
> not naive enough to believe into the soft and no-landing scenarios
That's fine. That's reasonable. What's not is thinking we'll have deficits cause lower rates and then inflation. If we have a hard landing, which is the historically-suggested outcome, we get lower rates and a recession. Not inflation.
> it becomes another form of QE.
No, because new money isn't being created. Existing money is not being removed. That's different.
> If you set the penalty rate on the level of the current Fed rate, eventually banks will fail
How?
> If you set the penalty rate on the level of the current Fed rate
It already is. This is how it works.
> since they can give enough loans at such rates and deposits actively flee into treasures and MMFs
How does the discount rate cause deposits to flee?
Also, what?! The discount rate is 5.5% [1]. Banks can borrow against the market value of their Treasuries at that. So for a dollar of face value, they can borrow ~60¢ at 5.5%. If we penalty that for face-value borrowing, they can borrow 100¢ at e.g. 8.5%. Help me understand how this additional liquidity causes whatever you're predicting?
The one where several trillions of deficit spending were fully financed by the Fed.
>Help me understand why a large holder of debt would want it to pay less?
Because the Fed is not a commercial organization and it's heavily influenced by politics. I will not be surprised, if in the following years financing of fiscal deficits by the Fed will be painted as a way "to save the economy" and to "fight unemployment".
>If we have a hard landing, which is the historically-suggested outcome, we get lower rates and a recession. Not inflation.
Yes, in the short term we will see deflation. But I predict that the hard lending will be painful enough for the Fed and the government to start stimulation of the economy fueled by bailouts and massive deficit spending. And this in turn will cause resurgence of inflation down the road.
>No, because new money isn't being created. Existing money is not being removed. That's different.
So taking a paper which costs $600 on the mark-to-market basis and giving in exchange $1000 is not a form of QE? Yes, those $1000 is technically a loan, but if you delay its repayment indefinitely, it becomes equivalent to creation of base money.
>How does the discount rate cause deposits to flee?
It's not the discount rate per se, but the Fed rate. If you can get 5.5% in a MMF (i.e. in RRP and short-term bills), why the hell would you keep your money in a bank's deposit for 1-2% together with risks associated with potential bank failure?
To attract deposits banks would have to provide competitive deposit rates, after that they would have to find someone trustworthy enough to give a loan at 10-15% rate. So the banks get squeezed from 3 sides:
- Either raise deposit rates or get money fleeing into MMFs.
- Not enough business is able to work with 10-15% loans in the face of worsening economic situation (especially after the recent near 0% environment).
- You still have to pay 4-5% on BTFP funds, which you had to take to offset fleeing deposits.
> one where several trillions of deficit spending were fully financed by the Fed
This isn't the Fed reacting to the deficit. Also, the Fed literally cannot directly fund the Treasury [1].
> I will not be surprised, if in the following years financing of fiscal deficits by the Fed
So ahistoric supposition.
> I predict that the hard lending will be painful enough for the Fed and the government to start stimulation of the economy fueled by bailouts and massive deficit spending. And this in turn will cause resurgence of inflation down the road.
See above.
> taking a paper which costs $600 on the mark-to-market basis and giving in exchange $1000 is not a form of QE
Do you consider any money creation QE? (This is incorrect.)
QE means starting with an amount of money to be created and then purchasing assets, including but not limited to government bonds, to create it. Central banks have always lent at the discount window. That's just money creation.
So yes, discount-window lending--whether at market or face value--is money creation. That's the point. It's used when a bank is in trouble, i.e. people want their deposits. So when a bank taps the discount window, it's turning a Treasury into a deposit at the Fed, but it's also typically destroying deposits on its own book. No net new money. Usually in a case of crashing money velocity. And certainly not QE.
> If you can get 5.5% in a MMF (i.e. in RRP and short-term bills), why the hell would you keep your money in a bank's deposit for 1-2%
Because I use my bank account to transact, not store value.
Also, interest rates are rising alongside bank deposits [2]? They've risen before? What you're describing has literally never happened.
> banks get squeezed from 3 sides
Bank margins go up when interest rates rise. Again, you're treating this like a novel situation. It's happened a lot of times in a lot of countries. What you're describing literally never happens.
This isn't even about making unprecedented predictions that have no theoretical basis. It's about misunderstanding the present state of the world. There are resources you can find at the Fed's website, if you're interested, as well as at the Bank of England.
I can’t think of any counter argument that says if you truly believe the American economy will be exposed to quantitive easing in any form (even if it’s interest rates below 4%) in the near future, then US equities are a great thing to have financial exposure to. I’m going to guess you would agree with that?
In an inflation environment equities usually do not feel great, since inflation causes shrinking margins and it takes time to pass rising costs on the consumer. Analysis from the Hussman Funds based on statistical data predicts that nominal return from equities in the next decade will be zero to negative.
I think it's unlikely (but not impossible) that we will see a direct repeat of the recent QEs. We probably will see something similar to the Japanese yield curve control and you can easily see how the Japanese equities performed in the last two decades.
> inflation environment equities usually do not feel great, since inflation causes shrinking margins and it takes time to pass rising costs on the consumer
This is factually untrue [1]. Equities aren't a surefire inflation hedge, as they're sometimes positioned. But it's also wrong that they "usually do not feel [sic] great" in inflation. (It's also wrong that margins compress in inflation.)
I was talking about high inflation environment. If you bought equities in the begging of 70s, it would take more than a decade to get nominal return. Even the paper you linked explicitly states:
>A large literature has documented the poor inflation hedging properties of the overall stock market. However, certain individual stocks have the ability to be good inflation hedges, even if the overall aggregate market has poor inflation hedging properties
You can position yourself defensively, but investing into a broad market using something like S&P500 or God forbid NASDAQ as an inflation hedge is arguably not a great idea.
> investing into a broad market using something like S&P500 or God forbid NASDAQ as an inflation hedge is arguably not a great idea
We are in agreement. The point is that inflation doesn't have a predictable effect on equities. Sometimes they do well. Sometimes they don't. In the most-recent case, equities have been a fantastic inflation hedge.
I do have concerns about debt, but this is essentially clickbait. The headline also seems to be factually incorrect. If you check out the Treasury report that they linked, the outlay category "net interest" is actually lower than "national defense".
> The headline also seems to be factually incorrect.
69 v 70? If anyone wants to try and seriously use that as a debate point I wish them the best but don't like their chances of landing a good rhetorical hit. And signs suggest it'll sound a hollow in 6 months at the rate the spending is chugging along.
Also the headline is presumably correct. Gross interest would be higher than net.
Usually I'm pretty happy to go in to any debate and argue for strong property rights and the importance of honouring debt agreements. However, at this point if the US government arranges some sort of default and anyone objects the responsibility really sits more with the creditors. The US government has been signalling that this headline was coming for ... Decade? Decades? Even if this isn't the most well telegraphed debt crisis in the history of the States it will be near the top of the list.
>> Deficit aside, how does a nation "borrow" money and must therefore pay interest on it, which rich trillionaires are financing the U.S?.
One large creditor is the Social Security Administration. They have invested trillions in treasury bonds. Sometimes when you hear SS is hav8ng a crisis its really just them needing to pull money out of that investment and people in congress being unhappy they have to pay back money borrowed by previous congress people. Fortunately even some high level folks from the federal reserve have educated them that it is in fact real debt and not some type of funny money they can just ignore.
It's twelve percent of the total budget but still remains "discretionary" and yet is the only thing in the budget that the Constitution explicitly calls for with everything else made up as supposed "general welfare"
From the article:
“As we have seen with recent growth in inflation and interest rates, the cost of debt can mount suddenly and rapidly,” Michael A. Peterson, CEO of the Peter G. Peterson Foundation, said in a statement.
“With more than $10 trillion of interest costs over the next decade, this compounding fiscal cycle will only continue to do damage to our kids and grandkids.”
While now might be different, the economy has been in good shape in aggregate over the last 30 years, with debt scolds sounding the alarm all throughout.
Some historical context as well (#5, towards bottom):
> Debt service as a share of federal outlays peaked at more than 15% in the mid-1990s, but generally falling interest rates have helped hold down payments even as the dollar amount continues to grow.
Absolutely f**ing rubbish. No. This is dead wrong. You are speaking authoratively but you don't know what you are talking about.
There is nothing inherently superior about debt/gdp. It is one good metric for tracking debt but is in no way the one true metric or intrinsically superior to other debt metrics and importantly it cannot give you a reasonably complete picture of the fiscal situation of a country because it is lacking the key component of incorporating rates and flows.
Japan has more than double our debt to GDP but this is able to not catastrophically blow up in the short term because their interest rates and therefore interest expense is low.
Again, really sad , but not rrally surprising to see low quality drivel stated authoratively as the top answer
Can you please make your substantive points without calling names or posting in the flamewar style? Besides not breaking the site guidelines, it will make your arguments more persuasive.
When someone else is wrong and/or you know more than they do, or feel this is the case, it's enough to post correct information and explain it to readers. Then we all can learn something. Putdowns, on the other hand, get in the way, poison conversation, and evoke worse from others.
Your comment would have been just fine without the first and final paragraphs.
GDP is such a juiced up a number I would not want to base any metric on it especially how much more debt we could conceivably take on. As an example: Americans are getting healthcare dicked at 18.3% of GDP, erm I mean they are contributing that much to the "economy" in a good way.
>> ...signed into law this summer to prevent a national default could result in a $1.5 trillion decrease to the deficit over the next decade.
I find this infuriating. Why over 10 years? Why not now? Because the deficit is on the order of $1T per year and saying it'll be reduced by 150 billion dollars a year sounds pathetic.
The economy is booming, stop spending money you don't have!
this is probably a dumb take, but I’m going to guess if you look at the budget of the federal government, you’re going to run into two problems that conflict with each other other. The first one being, there’s lots of spending that you really can’t lower easily. The second being that you really cannot increase revenues/income without some serious negative effects.
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[ 1.9 ms ] story [ 195 ms ] threadBeing less motivated to push for higher income is a far cry from deciding you don't want it and would rather have a lower income.
Also I haven't seen any plans that would remove particularly much motivation below a million dollars, and by the time you're making a million dollars I wouldn't say there needs to be motivation to go for more.
In that case, I'm not sure that our intuition about the effect of marginal incentives necessarily applies to the same degree. E.g. if a wealthy industrialist decides not to invest in a some piece of capital, it's not as though the capital ceases to exist; it will just be used by someone else. E.g. if an industrialist decides not to invest in a gold mine, then it's not as though the gold disappears. The land will simply be developed by someone else.
It’s true that I may never see that pension, but money given to the taxman is money I’ll never see again anyway.
A rule of thumb in these discussions: you can tell a person's salary by where they define rich.
Good Lord, 100k? I was making more than that in 1999. When I say rich, I am saying anyone who makes more than 1 - 1.5 million a year. 100k is just over poverty these days...
Well, no, even if we stretched the definition of poverty to cover people making the national median personal income, people making 2.5× that still wouldn’t be in or just over poverty, but, sure, if you redefine poverty to include the wealthy than the wealthy are “poor”. But there are people actually in poverty by its common definition, and people making $100k/yr—which was asserted to be on the edge of poverty generally these days upthread—have more in common with people making $1 million/yr than with those people in actual poverty.
> There are definitely places in the US where it would be very difficult to raise a family or buy a home on the median income.
“It’s difficult to buy a home” isn’t poverty, and the subject wasn't people earning the median personal income but $100k/yr.
Individual income tax is $1.96T but payroll taxes are $1.48T.
> To wit, “The Stat” is that the highest-earning one percent of taxpayers pay 40 percent of all income taxes. […] The first problem with The Stat is that it makes no reference to the proportion of income the rich earn. The juxtaposition between one percent and 40 percent is meant to convey the idea that a small number of people are carrying a gigantic and disproportionate burden, but the figure lacks any context when it omits how much money they earn in the first place.
> Indeed, it turns the fact that rich people account for a massive share of the income pool into a reason to see them as mistreated. One common move for polemicists brandishing this figure is to note that the share of taxes paid by the rich is “up sharply” over the past couple decades — which it is, on account of rich people claiming a larger share of the national income. The logic implied by The Stat is that the bigger the proportion of income earned by the richest one percent, the more imperative it is to reduce their tax rates, so that they don’t pay too high a share of the tax burden.
* https://nymag.com/intelligencer/article/fact-check-richest-1...
> Between 2014 and 2018, the 25 wealthiest Americans collectively earned $401bn, but paid just $13.6bn – about 3.4% of that – in taxes, according to a bombshell ProPublica investigation into the finances of the wealthiest Americans released on Wednesday.
[…]
> Billionaires in tech pay the lowest tax rate, an average of 17% of their income, largely because their wealth comes from such investment income. Bill Gates, whose income from 2013 to 2018 was an average of $2.85bn a year, paid an average effective federal income tax rate of 18.4%. Lauren Powell Jobs, the widow of Apple co-founder Steve Jobs, earned an average of $1.57bn and paid an average tax rate of 14.8%. Ten of the top 15 earners on the list are billionaires who made their money in tech.
> In comparison, the average single worker earning $45,000 paid an average tax rate of 21%. A married couple with one child who earns $200,000 paid a rate of 26%. In 2018, the highest top rate on ordinary income, which excludes investments, was 37%, yet the average tax rate for the 400 wealthiest Americans was 22% from 2013 to 2018.
* https://www.theguardian.com/us-news/2022/apr/13/wealthiest-a...
When you grab most of the income generated in the economy (leaving little for the folks at the bottom), then of course you pay most of the income taxes.
https://www.taxpolicycenter.org/taxvox/effective-income-tax-...
This is basically the principal behind universal basic income; adding more money to the pool by sending everyone a monthly check devalues the existing supply of money. If you have a billion dollars stuck in a savings account, the purchasing power of that billion goes down, incentivizing you to use it on something useful. That hurts you more the more money you have. As for prices increasing because of inflation; that's the beauty of mailing everyone a check. That takes care of that problem at the level of basic needs (food, medical care, housing, transportation), but not at the level of private jet flights being subsidized.
Flat taxes sound great in theory but they end up having a far larger impact on those for whom the tax directly cuts into their ability to pay for basic necessities. Will there be an minimum guaranteed spendable income limit below which the tax will not be taken?
Eh, when the term "millionaire" was made, a million dollars was worth about 30x less.
We can't keep focusing on the number 1000000 forever when we have constant inflation. A million dollars isn't even enough to let the average person retire and have a median income lifestyle.
https://www.americanprogress.org/article/tax-cuts-are-primar...
It seems pretty reasonable on magnitude grounds to mention something that cost $1.9 trillion in a single year while and omitting something that cost $1.7 trillion over five.
I don't 100% agree with this article, but I think you are somewhat misrepresenting it. If taxes were at the level they used to be then we would be in a better position debt-wise than we are now. Whether you disagree with raising taxes or not, it does seem reasonable to examine cost-increasing measures like tax cuts.
The OP article includes this paragraph:
“Getting the debt under control will require taking a serious look at health care, Social Security and the tax code,” CRFB president Maya MacGuineas said in a news release.
which mentions taxes.
I don’t see what the big problem is with specifically mentioning the ARPA given how absolutely enormous it was. My objection wouldn’t have been not mentioning specific tax cuts, but instead not mentioning CARES which was even larger at $2.2 trillion.
They of course don’t have the authority to do that, but they can tell congress to do so
A more fair approach would be a special assessment on net worth.
Which the current supreme court would strike down even if congress could put its pants on and try
Note that that is probably unconstitutional, aside from just being a bad idea in general (see similar implementations in other countries).
We have a lot of headroom for more taxes.
People past the 10 million $ mark have already succeeded at the American Dream - even at measly 1% return rates, they and their offspring don't have to work a single day in their lives again. They can be taxed without the economy even breaking into a sweat.
Personally, I think there should be a hard wealth cap at some point between 100M to 1 billion dollars. "Trickle down" has been proven to be outright bullshit, and the uber rich have political power similar to landed gentry, in some cases nearly as much as kings back in the days. It's enough.
how would a wealth tax incentivise people to save more and spend less?
It should be pointed out that people who currently work hard aren’t rewarded the same way people were when a lower tax environment existed. Do you think that is fair , if the taxes were raised significantly to cover the debt ? Specifically debt that the government accumulated before you even entered the workforce.
Assuming the upper end of that and half the usual 2% YoY growth we paid 1.2% of our GDP for a 1% increase in growth... So literally nothing as reducing taxes causing an increase of the same amount in GDP isn't meaningful. And that is assuming some generous conditions.
While these cuts never “pay for themselves”, raising the gdp at all is a lower bar.
Saying "but it would have been lower" is pointless.
I can’t believe anyone by MBAs and VCs seriously think we should go back to ZIRP.
Or cutting spending. Either way, fiscal policy creates and destroys money much more powerfully and equitably.
In the 2022 US federal budget, out of the $6.3T worth of total spending, $4.1T was mandatory: Social Security, Medicare, Medicaid, etc. $1.7T was discretionary (top item being DoD), and $0.5T interest payments. Revenues were $4.9T.
* https://en.wikipedia.org/wiki/United_States_federal_budget
What do you want to cut in discretionary spending?
Unclear. If structured as a promise, it could be considered backed by the full faith and credit of the United States. That’s Constitutionally protected.
https://en.wikipedia.org/wiki/Trillion-dollar_coin
What does this mean?
Then something else becomes money. This has happened, in the past, when metal money was scarce. More realistically, if one person hoards a money, i.e. accumulates and doesn't meaningfully spend it, it gets taken.
The US Government effectively acts as the borrower of last resort in this situation by being the only place where a large asset holder can safely store capital and spending the borrowed capital. It would be possible to perform the same activity with taxation, or policy decisions that raise the base wage in the economy, or by simply printing more money - but the activity must be done to prevent deflationary spirals from occurring.
Printing money comes with the con that asset holders will end up with more capital. Unfortunately, there is no guarantee that such holders remain obligatory savers, and they may begin engaging in irrational spending.
I expect the Fed will drop the interest rate and/or will re-start QE somewhere in the next year, so expect new waves of inflation similar to 70s.
[1]: https://markets.businessinsider.com/news/bonds/us-debt-matur...
Side note, this has been Silicon Valley's take for a decade. It's wrong. It results from a series of fundamental misunderstanding that caught start-ups, VCs and even Silicon Valley Bank flat footed by the Fed's rate rises occurring and persisting.
To be fair, the banking system has started breaking, but, instead of lowering the rate, the Fed has temporarily masked it by the BTFP. When the program will end, banks will end up with huge holes in their balance sheets (discounted paper + accumulated interest on BTFP funds). So we either end up with a huge banking crisis, or the Fed will prolong the program, thus effectively making it a form of QE.
They expected the economy to cool thereby causing rates to fall. Because what we're going through--rising rates, falling inflation and persistent growth--is literally the first time an economy of note has managed the opposite of stagflation.
The Fed being constrained by the federal deficit (or even interest expenditure) is a different beast. Nobody serious thinks the Fed would lower rates to finance the government thereby causing inflation. If the Fed is lowering rates, the economy is cooling. That's deflationary. If the economy is doing well enough that lowering rates would cause inflation, there is no need to lower rates.
Stagflation is real. But it's never happened in the way this theory describes (deficits --> lower rates --> inflation amidst recession). And there are simple, well-tested reasons to find that causation ridiculous.
> banks will end up with huge holes in their balance sheets
It's a trivial hole to fill: let banks borrow at the discount window against the face instead of market value of their Treasuries. (At a penalty rate, I would add.)
The persistent problems in banking come from credit risk. That's happening in commercial real estate. But not rates.
>If the economy is doing well enough that lowering rates would cause inflation, there is no need to lower rates.
I am not naive enough to believe into the soft and no-landing scenarios. The gradual yield curve uninversion points to incoming recession. Huge fiscal deficits contribute to it, since without QE they cause crowding out of private debt markets.
>Just let banks borrow at the discount window against the face instead of market value of their Treasuries.
And, as I've said, it becomes another form of QE. If you set the penalty rate on the level of the current Fed rate, eventually banks will fail, since they can give enough loans at such rates and deposits actively flee into treasures and MMFs. And using lower rates will be rightfully seen as yet another bailout of banks.
What history? When did the Fed ever lower rates because of the deficit?
> Japan where BoJ effectively owns almost all of the Japanese government debt.
Help me understand why a large holder of debt would want it to pay less? (Also, Japan is a bad model for America.)
> not naive enough to believe into the soft and no-landing scenarios
That's fine. That's reasonable. What's not is thinking we'll have deficits cause lower rates and then inflation. If we have a hard landing, which is the historically-suggested outcome, we get lower rates and a recession. Not inflation.
> it becomes another form of QE.
No, because new money isn't being created. Existing money is not being removed. That's different.
> If you set the penalty rate on the level of the current Fed rate, eventually banks will fail
How?
> If you set the penalty rate on the level of the current Fed rate
It already is. This is how it works.
> since they can give enough loans at such rates and deposits actively flee into treasures and MMFs
How does the discount rate cause deposits to flee?
Also, what?! The discount rate is 5.5% [1]. Banks can borrow against the market value of their Treasuries at that. So for a dollar of face value, they can borrow ~60¢ at 5.5%. If we penalty that for face-value borrowing, they can borrow 100¢ at e.g. 8.5%. Help me understand how this additional liquidity causes whatever you're predicting?
[1] https://www.frbdiscountwindow.org
The one where several trillions of deficit spending were fully financed by the Fed.
>Help me understand why a large holder of debt would want it to pay less?
Because the Fed is not a commercial organization and it's heavily influenced by politics. I will not be surprised, if in the following years financing of fiscal deficits by the Fed will be painted as a way "to save the economy" and to "fight unemployment".
>If we have a hard landing, which is the historically-suggested outcome, we get lower rates and a recession. Not inflation.
Yes, in the short term we will see deflation. But I predict that the hard lending will be painful enough for the Fed and the government to start stimulation of the economy fueled by bailouts and massive deficit spending. And this in turn will cause resurgence of inflation down the road.
>No, because new money isn't being created. Existing money is not being removed. That's different.
So taking a paper which costs $600 on the mark-to-market basis and giving in exchange $1000 is not a form of QE? Yes, those $1000 is technically a loan, but if you delay its repayment indefinitely, it becomes equivalent to creation of base money.
>How does the discount rate cause deposits to flee?
It's not the discount rate per se, but the Fed rate. If you can get 5.5% in a MMF (i.e. in RRP and short-term bills), why the hell would you keep your money in a bank's deposit for 1-2% together with risks associated with potential bank failure?
To attract deposits banks would have to provide competitive deposit rates, after that they would have to find someone trustworthy enough to give a loan at 10-15% rate. So the banks get squeezed from 3 sides:
- Either raise deposit rates or get money fleeing into MMFs.
- Not enough business is able to work with 10-15% loans in the face of worsening economic situation (especially after the recent near 0% environment).
- You still have to pay 4-5% on BTFP funds, which you had to take to offset fleeing deposits.
This isn't the Fed reacting to the deficit. Also, the Fed literally cannot directly fund the Treasury [1].
> I will not be surprised, if in the following years financing of fiscal deficits by the Fed
So ahistoric supposition.
> I predict that the hard lending will be painful enough for the Fed and the government to start stimulation of the economy fueled by bailouts and massive deficit spending. And this in turn will cause resurgence of inflation down the road.
See above.
> taking a paper which costs $600 on the mark-to-market basis and giving in exchange $1000 is not a form of QE
Do you consider any money creation QE? (This is incorrect.)
QE means starting with an amount of money to be created and then purchasing assets, including but not limited to government bonds, to create it. Central banks have always lent at the discount window. That's just money creation.
So yes, discount-window lending--whether at market or face value--is money creation. That's the point. It's used when a bank is in trouble, i.e. people want their deposits. So when a bank taps the discount window, it's turning a Treasury into a deposit at the Fed, but it's also typically destroying deposits on its own book. No net new money. Usually in a case of crashing money velocity. And certainly not QE.
> If you can get 5.5% in a MMF (i.e. in RRP and short-term bills), why the hell would you keep your money in a bank's deposit for 1-2%
Because I use my bank account to transact, not store value.
Also, interest rates are rising alongside bank deposits [2]? They've risen before? What you're describing has literally never happened.
> banks get squeezed from 3 sides
Bank margins go up when interest rates rise. Again, you're treating this like a novel situation. It's happened a lot of times in a lot of countries. What you're describing literally never happens.
This isn't even about making unprecedented predictions that have no theoretical basis. It's about misunderstanding the present state of the world. There are resources you can find at the Fed's website, if you're interested, as well as at the Bank of England.
[1] https://www.federalreserve.gov/faqs/money_12851.htm
[2] https://fred.stlouisfed.org/series/DPSACBW027SBOG
In an inflation environment equities usually do not feel great, since inflation causes shrinking margins and it takes time to pass rising costs on the consumer. Analysis from the Hussman Funds based on statistical data predicts that nominal return from equities in the next decade will be zero to negative.
I think it's unlikely (but not impossible) that we will see a direct repeat of the recent QEs. We probably will see something similar to the Japanese yield curve control and you can easily see how the Japanese equities performed in the last two decades.
This is factually untrue [1]. Equities aren't a surefire inflation hedge, as they're sometimes positioned. But it's also wrong that they "usually do not feel [sic] great" in inflation. (It's also wrong that margins compress in inflation.)
[1] https://www.nber.org/system/files/working_papers/w17798/w177...
>A large literature has documented the poor inflation hedging properties of the overall stock market. However, certain individual stocks have the ability to be good inflation hedges, even if the overall aggregate market has poor inflation hedging properties
You can position yourself defensively, but investing into a broad market using something like S&P500 or God forbid NASDAQ as an inflation hedge is arguably not a great idea.
We are in agreement. The point is that inflation doesn't have a predictable effect on equities. Sometimes they do well. Sometimes they don't. In the most-recent case, equities have been a fantastic inflation hedge.
69 v 70? If anyone wants to try and seriously use that as a debate point I wish them the best but don't like their chances of landing a good rhetorical hit. And signs suggest it'll sound a hollow in 6 months at the rate the spending is chugging along.
Also the headline is presumably correct. Gross interest would be higher than net.
Paying interest on money that only exists because others trust you seems too stupid to actually be true, right?.
fiat currency is a game of trust.
This is essentially how a bank works, so I'm not sure how stupid it actually is.
This is literally the fundamental basis of all modern monetary systems.
They sell treasury bonds, mainly to other nations and corporations.
One large creditor is the Social Security Administration. They have invested trillions in treasury bonds. Sometimes when you hear SS is hav8ng a crisis its really just them needing to pull money out of that investment and people in congress being unhappy they have to pay back money borrowed by previous congress people. Fortunately even some high level folks from the federal reserve have educated them that it is in fact real debt and not some type of funny money they can just ignore.
Someone like Peterson, as quoted in the article, has been saying the same thing since the 80’s, warning people of impending doom. In 2004: https://www.thriftbooks.com/w/running-on-empty-how-the-democ...
And before that in 1993: https://www.thriftbooks.com/w/facing-up_peter-g-peterson/126...
From the article: “As we have seen with recent growth in inflation and interest rates, the cost of debt can mount suddenly and rapidly,” Michael A. Peterson, CEO of the Peter G. Peterson Foundation, said in a statement.
“With more than $10 trillion of interest costs over the next decade, this compounding fiscal cycle will only continue to do damage to our kids and grandkids.”
While now might be different, the economy has been in good shape in aggregate over the last 30 years, with debt scolds sounding the alarm all throughout.
> Debt service as a share of federal outlays peaked at more than 15% in the mid-1990s, but generally falling interest rates have helped hold down payments even as the dollar amount continues to grow.
* https://www.pewresearch.org/short-reads/2023/02/14/facts-abo...
Also, out of the ~$6T of spending in 2022, about $4T was mandatory (Social Security, Medicare, etc):
* https://en.wikipedia.org/wiki/United_States_federal_budget
With $1.7T being discretionary, and $0.5T being interest.
There is nothing inherently superior about debt/gdp. It is one good metric for tracking debt but is in no way the one true metric or intrinsically superior to other debt metrics and importantly it cannot give you a reasonably complete picture of the fiscal situation of a country because it is lacking the key component of incorporating rates and flows.
Japan has more than double our debt to GDP but this is able to not catastrophically blow up in the short term because their interest rates and therefore interest expense is low.
Again, really sad , but not rrally surprising to see low quality drivel stated authoratively as the top answer
When someone else is wrong and/or you know more than they do, or feel this is the case, it's enough to post correct information and explain it to readers. Then we all can learn something. Putdowns, on the other hand, get in the way, poison conversation, and evoke worse from others.
Your comment would have been just fine without the first and final paragraphs.
https://news.ycombinator.com/newsguidelines.html
I find this infuriating. Why over 10 years? Why not now? Because the deficit is on the order of $1T per year and saying it'll be reduced by 150 billion dollars a year sounds pathetic.
The economy is booming, stop spending money you don't have!
Tell me what you'd cut. Every politician railing for deficit reduction is also curious silent on what they'd axe.