Concise summary of the US budget problem

[snousle]

In a nutshell, from Forbes:

...taxpayers are on the hook for Social Security and Medicare by these amounts: Social Security, 1.3% of GDP; Medicare part A, 2.8% of GDP; Medicare part B, 2.8% of GDP; and Medicare part D, 1.2% of GDP. This adds up to 8.1% of GDP. Thus federal income taxes for every taxpayer would have to rise by roughly 81% to pay all of the benefits promised by these programs under current law over and above the payroll tax.

This one paragraph explains 90% of the hysteria in politics today. One might call it the "failure of socialism", except to the Tea Party, socialism is all the other programs. You know, the ones that they don't need themselves, and which aren't busting the budget. Hence the grousing over such things as Planned Parenthood and "foreign aid", which comprise such small portions of federal spending that they're lost in the noise. By moving the fight to issues that are completely irrelevant, conservative leaders solve the difficult problem of opposing "socialism" without scaring the shit out of their fan base.

To be fair, I greatly admire 60 year old conservatives who are willing to say outright that they want Medicare abolished. Right there, that's a few hundred grand out of their own pocket. Nothing like putting your money where your mouth is. Especially when they don't have the money and face going without medical treatment entirely.

Unfortunately, the US is caught between a rock and a hard place. Americans can do this the easy way, by facing up to reality and making a choice, or the hard way, through a debt crisis that would leave millions of senior citizens literally starving on the streets. Personally, I favor splitting the difference, which means a 50% tax increase coupled with substantial benefit reductions. The fact that this compromise is, simultaneously, radically liberal and radically conservative means that it's going to be done the hard way. It will be interesting to see how this ends.

Comments

[bitterlawngnome.livejournal.com]

where "interesting" = "tragic"

[snousle.livejournal.com]

Maybe. A lot can happen between then and now.

[bitterlawngnome.livejournal.com]

I suppose a big part of the problem is how much more expensive it is to deliver medical care in the US ?

[snousle.livejournal.com]

About twice as much as in Canada:

http://www.medicalbillingandcoding.org/medical-costs-1/

A very hard problem to solve; when you have a sector that's slurping up 14% of GDP they don't let go of it easily.

[bitterlawngnome.livejournal.com]

They should outsource it to Canadastan.

[fogbear.livejournal.com]

Yeah. Sorry. I don't trust an anti-tax organ like Forbes for a balanced answer. Suddenly "every" taxpayer faces an increase of the same amount, even though a small proportion of taxpayers faced huge decreases over the past thirty years?

Someone whose salary is $10 million a year pays exactly the same dollar amount in payroll taxes as someone who makes $110,000. Not the same rate, the same dollar amount.

Someone whose salary is $10 million a year pays the same marginal rate on the ten-millionth dollar as he/she does on the three-hundred-thousandth dollar.

This "crisis" could be solved by abolishing the payroll tax ceiling and and instituting new income tax brackets for the obscenely high levels of income. And don't get me started on corporate tax loopholes and miscellaneous tax breaks for unearned income, including estate taxes.

[snousle.livejournal.com]

Suddenly "every" taxpayer faces an increase of the same amount

I don't think that the point of the article is to advocate this particular solution; it is merely illustrative of how much more tax needs to be raised.

Someone whose salary is $10 million a year pays exactly the same dollar amount in payroll taxes as someone who makes $110,000. Not the same rate, the same dollar amount.

That is only true if you define "payroll tax" to exclude federal income tax. The cap on social security tax should definitely be lifted, but that only gets you part way there.

This "crisis" could be solved by abolishing the payroll tax ceiling and and instituting new income tax brackets for the obscenely high levels of income

I don't believe this solves the problem; a higher top marginal rate would be an improvement, but I don't think you can raise it enough to close this gap. Feel free to prove me wrong on this, I'm very amenable to any calculations that would show otherwise.

While I tend to favor progressive tax rates, it also creates problems because the income of the top earners has become extremely volatile, and excessive reliance on them makes it hard to set budgets at all. In this particular case, the additional revenue needed is so large that taxing high earners is not a reliable way to raise the money; those high incomes might well "vanish" with no consequences to their earners. It is better for taxes to be flat, with cash subsidies for low earners (i.e. a "negative income tax"), than to pursue the fiscally equivalent progressive plan. Unfortunately such tax structures are politically difficult to achieve and probably impossible under the American system.

[furr-a-bruin.livejournal.com]

It is better for taxes to be flat, with cash subsidies for low earners

From one perspective, maybe - but progressive tax rates (like we had before Reagan) have other beneficial effects. By making it fiscally unrealistic to pay corporate executives ludicrous sums, or for private owners to pull vast amounts of money out of the company, that money stays in the corporation where it is far more likely to be used in a way more useful to the wider economy - hiring people, updating/expanding equipment, etc. We only saw the explosion in executive salary after the Reagan tax cuts.

For example - does it make any sense for former General Motors CEO Rick Wagoner to have made more money than Honda's ENTIRE executive board combined, when the two companies are roughly the same size? (At least in 2006, the only year I found numbers for both.) Especially since the latter live in/near Tokyo, one of the most expensive cities in the world; I doubt even the most upscale area near GM's headquarters can compare.

While it's not the greatest example because of the huge pile of cash Apple is sitting on, as I heard someone remark in response to the R's demand for even further personal tax cuts - "Steve Jobs doesn't hire people - Apple does."

[fogbear.livejournal.com]

OK, so I was rushing about getting ready for work this morning so I was a little fast and loose with my response.

First, the Forbes piece is a commentary/opinion piece, not a fully researched news article. So it doesn't surprise me that it has a particular point of view.

Secondly, you're absolutely right: "Payroll tax" to me means social security + medicare + unemployement insurance. Since I haven't received a W-2 in 20 years, I don't think of income tax withholding as part of the equation.

I don't have all the statistics at my fingertips, but I know I've heard/read from sources I tend to trust that simply letting the Bush tax cuts expire (whether for the high brackets or for everyone) would go a long way towards reducing the deficit. That's just the easiest step. Social Security tax reform (along with needs-adjusted benefits) would help stabilize that problem. Retirement age adjustments, such as those that are already in place, would help as well. More people live longer than they did in 1935.

Of course, that's not all, but it's a start. Getting health care costs under control by removing the profit motive for the health insurance industry (for one) would go a long way towards alleviating Medicare problems, as would re-doing the prescription drug benefit to give the government some real negotiating power over costs. Real health care reform, including a public option and an emphasis on preventative medicine, would improve coverage and reduce the problem of the uninsured showing up in emergency rooms and getting more costly care. A serious national discussion about end-of-life issues certainly wouldn't hurt, and could address the fact that final illnesses are frequently bank-breakingly expensive.

And so on.

A flat tax is a nice idea, but once you start offering subsidies, you immediately trigger the redistribution argument. When the government gives money to people, those who aren't getting it feel that the government is just giving their money to someone who "doesn't deserve it." Just look at welfare and food stamps. And just try to get rid of the deductions for charitable contributions and mortgage interest.

This hasn't even started on the corporate tax problem.

[snousle.livejournal.com]

So this is all fine and well, and the Simpson-Bowles budget plan takes basically this approach - cutting and taxing in many different places - to achieve a reasonable hope of long-term fiscal balance.

But this doesn't decrease the total size of the necessary adjustments, and as you have probably noticed, this plan has little hope of being put into practice, despite being the best shot we've got right now. You can point out all kinds of tweaks, but no matter how you slice it they are, in the aggregate, not acceptable to voters. Which is why a debt crisis seems nearly inevitable.

An aside: "removing the profit motive for the health insurance industry" means "ending private health insurance". I'm all for a single-payer system, but you can't just destroy private insurance without a plan for replacing it.

[fogbear.livejournal.com]

Well, then American voters will get the country they deserve. They've been sold a bill of trickle-down goods without realizing that it's sewage that's trickling down on them.

"Removing the profit motive" from health insurance doesn't necessarily mean ending private health insurance. Having for-profit publicly-traded corporations provide health insurance warps their priorities. Non-profit entities (e.g., Kaiser) that do not need to answer to Wall Street are at least a step in the right direction. Kaiser has had some downright horrible periods over the years (I've been with them my entire life and have witnessed them) is at least a starting point.

Crap, I thought I was logged in.

[h0gwash.livejournal.com]

I haven't read the Forbes ad, I've only kept loose track of the debate. It would seem that taxes for the not so poor should increase by a similar amount that medicare and social programs for the poor would be decreased. But obvious solutions only create an opportunity for furious spinning.

[broduke2000.livejournal.com]

I can't wait for them to privatize Medicare and Medicaid.

Just think: Thousands of new, loud and obnoxious TV ads all promising you the kitchen sink. And then when you finally get sick, they find a loophole not to pay it.

I'm waiting for the Geico Gecko with a stethoscope around his neck. YES! You can save thousands of dollars more on health insurance!