"Last November, I projected interest payments of $411 Billion for fiscal 2006."
CR - would you be so kind as to do a projection of debt payments at whatever the average interest rate was before Greenhack started the latest liquidity flood in 2001, and one for 20% higher (not 20 percentage points)? I suspect rates are going to revert and then overshoot the mean in the near future.
Well, I'm selling bonds this week (just trying to raise cash, not eyebrows), so don't blame me for keeping government borrowing costs down. On the other hand, my 18-year-old niece just got her first credit card. How does it feel?
Like a rolling stone. No direction home. Like a complete unknown. When you got nothing, you got nothing to lose. You're invisible now, you got no secrets to conceal. /boomer angst
Not good. And the importance of this is dwarfed by the Medicare issue. Fed Revenue is over $2 trillion. Spending is the problem I think.
The question is what do we do? How about the following?
Extend the ages on SS and Medicare by three months every year until the Trustees tell us they are in balance? In other words, we will all work for more years.
A freeze in real Fed Spending for five years. (Still gotta fight about priorities)
Change the tax code to being consumption based (carve outs for necessities or take a pre-bate approach). Wanna buy a Mercedes or a yacht? Great, get ready to write a big check to Uncle Sam. Let's use the tax code to drive investment, not consumption.
Just think what the interest payments will look like when 10-yr and 30-yr rates go up to their historical averages or higher, and the national debt increases to 9 or 10 Trillion.
$420 Billion divided by
100 Million (slightly higher than the number of tax filers who actually pay Federal income tax)
=$4200 per american taxpayer
Obviously this isn't distributed evenly but its amazing that on average we each have to pay $4200 just to pay for past wars and fiscal recklessness.
Now that's the way to look at debt - as a percentage of income.
And for that reason, a protracted period of slow economic growth or outright recession should be worrisome if it reduces the denominator in the equation.
But at least it looks like there's room for some sort of federal bailout if things really fall apart. Of course that didn't work out so well in Japan...
I swear I'll fight "FairTax" to my last breath. OK, now that I've got that out of my system... No, actually, I don't.
Changing to a consumption tax doesn't help - not when the rate needs to be vicinity 30% just for "revenue neutral" (using FairTax arguments and assumptions which are questionable). Modifying with a "pre-bate" doesn't change that fact. And digging into details shows the other problems. For example:
Will businesses be exempt? (And which?)
Will sales of stocks (and other investments) be taxed?
Will home sales (and other large property sales) be taxed?
I'm willing to discuss the problems with each of these if they're not obvious - problems regardless of decision - but I think it hijacks the thread. The bottom line of the FairTax position, however, is that it accomplishes none of the things it promises.
Fiscal responsibility in 3 easy steps:
1) Cut Defense spending to $50 billion
2) Amend Meidicare Plan D so that states negotiate drug prices, rather than indiviuals by state.
3) Leave Social Security alone. Off-budget numbers are stellar compared to the on-budget numbers. It isn't broke , so don't fix it....at least until you have done the above two things.
American's won't buy into step #1. It is really a crucial step though. The US would be a much stronger nation in total, as a result. We can see from Iraq the limitations of military force, and we can see from China the power of economic strength.
We won't do it. We are free to be as foolish and frivolous as we like.
Fiddle dee dee,
The boomers shall stamp their pretty feet and the problem shall go away!
Money flies to heaven every day the fed prints more, and more, and more.
Last week the fed added $8 billion to the money supply, or an extra $32 for every adult in America. Funny how I don't feel richer.
I know dry, it really isn't worth the breath it takes to point out the emperor has no clothes. But then the obvious totally escapes joe six pack, till the price of beer goes up- did you check out the price of wheat and rice? Going up with your beer prices...
Major changes in the economy mean major disruptions. Shifting from a full-time war economy would be a major change. Major changes in the global security structure would very likely lead to major disruptions of a different kind. I admire the goal of your first step, but let's get there slowly, OK? Start right away, but get there slowly.
Extend the ages on SS and Medicare by three months every year until the Trustees tell us they are in balance? In other words, we will all work for more years.
You believe the trustees? How nice.
SS isn't the problem - about the time it is we can all go to Mars.
Medicare IS a problem & right now but it isn't linked to SS, rather to medical coverage in general - fix that and Medicare problem goes away.
The current budget is the nut we have to bust now & it isn't getting done.
As a result you will NOT see a budget freeze nor is one possible with a two front war that isn't going to wind down anytime soon (unless we decide we don't care about oil all that much - it might not have been about oil in late in '01, it is now).
You want a fix? I'd go for a consumption tax IF you also raised marginal rates a bunch for the wealthiest - I'm saying put a 10% VAT on consumption & then 10% tax surcharge on upper quartile earners... at least until the debt burden problem goes away.
Scared that might put a damper on growth?
Couple the whole package with comprehensive 'harmonization' of all tax classes so cap gains, estate and income tax are treated fundamentally the same... same schedule... individuals & corps alike. Still progressive as hell but same schedules so as to discourage hanky panky.
To help the poor from the harshness of the VAT - increase the per capita income tax exclusion.
Then to encourage & reward the wealthy who invest here, allow for VERY rapid expensing of real investments... and allow for exchange of real investments (cap gains exchanges).
Meaning I buy a machining center for a couple million, I can expense at what ever rate I want to give me maximum tax benefit. But if I expense it all the way then sell it, I pay full cap gains tax on the sale at the same rate as income.
If I exchange it for a different machine of equal value - I pay no tax... until I sell the second machine for cash to consume... then I pay the income tax rate on that(harmonization) and any VAT on crap I buy with the income.
Same with estates - I get a cool million from my late Grampa, and I buy a milling machine... I pay no tax. I take Gramps million & go to the casino, I pay tax up the nose as if income.
In effect treat estates like they were cap gains with zero basis - you wouldn't pay tax on it until you spend it & then you pay tax through the nose.
The difference between this type of system & conservative 'consumption tax' is it puts a big carrot & stick out there to grow the economy via private investment in productive enterprises (not just financial engineering).
Consume and you pay. Save & invest and you pay almost nothing.
Most well heeled folks would invest & save a lot and gov't needs to get funded so that's why you'd need the higher rates on what income they didn't shelter.
However it wouldn't be wasted 'sheltering' unless you think investing in productive assets is a waste.
Gov't doesn't tell you what to do but does tell you to do something other than piss it away or they will piss it away for you.
We could argue about what is & isn't productive but most folks know when they see it - I'm in small biz, I know.
Oh and I wouldn't allow expensing of stocks or bonds directly - only the hard assets like machines or factories or mines they own. The companies the stocks represent get to do that & pass it on to you as dividends or stock price appreciation (both treated the same, as income).
But I would end double taxation - make the dividend be treated like income... recipient pays the tax, corp takes a write off like it was salary paid. Huge incentive to pay dividends (and then its YOUR problem what to do with the tax burden - maybe invest & expense that too?).
I've bounced this 'plan' off tax wonks - family members who actually teach tax law at university - and they say it would work... but never pass.
My only concern about a system like this is there wouldn't be enough bodies to man all the machines companies would want to buy - that's how much growth their would be. The incentives offered by accelerated depreciation to avoid the nominal tax rate increases would be enormous - those machines would need to be manned to produce income which would also be 'sheltered' by buying more machines.
Dryfly, I like your ideas. On the whole, whenever I hear consumption tax/VAT/"Fair Tax" (you go, Kirk!) I reach for my gun (rhetorically speaking, children. Calm down.) When I hear SS "reform" I come unglued.
I periodically receive injections of what is called a "colony stimulating factor"--cool new drugs that help the bone marrow produce new white blood cells after things like chemotherapy kill too many of them. Every time I mention the drug name, everybody says the same thing to me: Oh, yeah, I saw that one advertised on TV. (I don't watch TV when I can avoid it, so this still freaks me out.) ONE DOSE costs well over $1,000. In the last six months I've had four doses. And that's just a fraction of the total cost of my chemo regimen; and I'm one of the lucky ones who gets one major drug that is now generic (but still expensive to produce--chemo drugs are major biohazards. But advertising expenses to sell cancer drugs to the general public???) Remember that next time the voice says "ask your doctor about" prescription drugs with brand-new patents advertised on TV. I swear, the next time somebody tries to tell me SS is a bigger problem than the whole medical system/pharma problems that underlie the Medicare/Medicaid problems, I'll find a way to throw up on them over the internet.
Damn right we need to look at government debt in terms of income. But what do people see when they look at medical care as a percent of GDP? That's OK because it's "private" and not "government"? Ack.
I really wish I could still drink. (Yeah, I know. You all wish I could too. Remember how funny I used to be when I'd have an extra glass of Merlot? No? Damn, I thought I remembered that . . .)
Tanta, I agree... there are LOTSA problems with my 'rough concept'... my sis & I have talked about writing a book some day to put flesh on the bones, she is one of the tax wonks I mentioned. She understands tax law inside and out, I understand small biz - make the two work for good for once, instead of evil.
One problem I have with the above version of the 'Code of Dryfly' is leverage.. I would not want to reward firms who buy equipment on credit then immediately expense the investment AND simultaneously expense the interest on the loan... I mean weren't we just talking about too much liquidity a thread or two ago?
There would have to be details & therein resides the devil. I can see work arounds but why waste CR's bandwidth with details.
But the key concept of tax class harmonization with increased progressivity for the wealthy coupled to a consumption tax aimed at the masses - both softened somewhat with targeted exemptions & exclusions - is in my estimation a route out of the swamp.
And if structured right - would all but compel knuckle heads like me to quit blogging and go do something productive like buy machines (and hire no goods like my sons to run them). I think they call that 'growth'.
Sometimes the best ideas come from looking at your mug in the mirror or your family around the dinner table.
Speaking of nominal - the graph would look different if one used the real interest rate instead of the nominal rate especially for the 1970's. For the 1980's - part of the reason for the spike was high real interest rates. Which may be in store for the rest of this decade.
And as for costing out drugs - don't even get me started.
You are ABSOLUTELY correct about the marketing-research budget fudging and advertising is only part of the horrors.
I have friends who worked as pharma reps before they got honest work - their budget driving around talking to docs & buying them dinner was out of the 'development budget'... not marketing... as long as (wink, wink) they were there to educate the docs about a 'new' (wink, wink) drug.
I don't know how much of the actual development budget ought to be carried by marketing but it isn't a trivial amount.
If that whole industry doesn't get fixed - we'll have that conversation we had on the other thread (stuff about Trotsky and Mexico and axes) except it will be in the streets & eventually the halls of congress. People will put up with having their miniMansions foreclosed upon because they were morons - they will not sit idle while their loved ones die without even the HOPE of treatment.
Vorpal,
Major changes in the economy mean major disruptions. Shifting from a full-time war economy would be a major change. Major changes in the global security structure would very likely lead to major disruptions of a different kind. I admire the goal of your first step, but let's get there slowly, OK? Start right away, but get there slowly.
I agree. Then again, if we dragged our feet that would have negative consequences as well. The process would have to be managed.
Heroic thought that legislation that has enabled the wealthy to fortify their positions and accumulations, might seize the moment and realize the error of their ways and become Good Semaritans, distributing their Trillions to the starving Africans as if they were Bill Gates.
The pharma is a relatively new arm compared to the military heist on ordinary working people and thinking that reversals can just be pencilled in is naive...ok, maybe also heroic.
My heart goes out to you and yours Tanta, wishing you a speedy recovery and more.
just think if we carried no debt we'd have $411 billion more to spend. mind boggling really.
"Last November, I projected interest payments of $411 Billion for fiscal 2006."
CR - would you be so kind as to do a projection of debt payments at whatever the average interest rate was before Greenhack started the latest liquidity flood in 2001, and one for 20% higher (not 20 percentage points)? I suspect rates are going to revert and then overshoot the mean in the near future.
Thanks for your great blog.
Well, I'm selling bonds this week (just trying to raise cash, not eyebrows), so don't blame me for keeping government borrowing costs down. On the other hand, my 18-year-old niece just got her first credit card. How does it feel?
Like a rolling stone. No direction home. Like a complete unknown. When you got nothing, you got nothing to lose. You're invisible now, you got no secrets to conceal. /boomer angst
Not good. And the importance of this is dwarfed by the Medicare issue. Fed Revenue is over $2 trillion. Spending is the problem I think.
The question is what do we do? How about the following?
Todays report on San Diego has been released!
Local Home Price Analysis
Just think what the interest payments will look like when 10-yr and 30-yr rates go up to their historical averages or higher, and the national debt increases to 9 or 10 Trillion.
$420 Billion divided by
100 Million (slightly higher than the number of tax filers who actually pay Federal income tax)
=$4200 per american taxpayer
Obviously this isn't distributed evenly but its amazing that on average we each have to pay $4200 just to pay for past wars and fiscal recklessness.
Now that's the way to look at debt - as a percentage of income.
And for that reason, a protracted period of slow economic growth or outright recession should be worrisome if it reduces the denominator in the equation.
But at least it looks like there's room for some sort of federal bailout if things really fall apart. Of course that didn't work out so well in Japan...
Banker, on that consumption (aka sales) tax...
I swear I'll fight "FairTax" to my last breath. OK, now that I've got that out of my system... No, actually, I don't.
Changing to a consumption tax doesn't help - not when the rate needs to be vicinity 30% just for "revenue neutral" (using FairTax arguments and assumptions which are questionable). Modifying with a "pre-bate" doesn't change that fact. And digging into details shows the other problems. For example:
Will businesses be exempt? (And which?)
Will sales of stocks (and other investments) be taxed?
Will home sales (and other large property sales) be taxed?
I'm willing to discuss the problems with each of these if they're not obvious - problems regardless of decision - but I think it hijacks the thread. The bottom line of the FairTax position, however, is that it accomplishes none of the things it promises.
Add the State, corporate and individual debt to the total. Wonder how much liquidity is needed just to service all the debt?
Fiscal responsibility in 3 easy steps:
1) Cut Defense spending to $50 billion
2) Amend Meidicare Plan D so that states negotiate drug prices, rather than indiviuals by state.
3) Leave Social Security alone. Off-budget numbers are stellar compared to the on-budget numbers. It isn't broke , so don't fix it....at least until you have done the above two things.
American's won't buy into step #1. It is really a crucial step though. The US would be a much stronger nation in total, as a result. We can see from Iraq the limitations of military force, and we can see from China the power of economic strength.
We won't do it. We are free to be as foolish and frivolous as we like.
Fiddle dee dee,
The boomers shall stamp their pretty feet and the problem shall go away!
Money flies to heaven every day the fed prints more, and more, and more.
Last week the fed added $8 billion to the money supply, or an extra $32 for every adult in America. Funny how I don't feel richer.
I know dry, it really isn't worth the breath it takes to point out the emperor has no clothes. But then the obvious totally escapes joe six pack, till the price of beer goes up- did you check out the price of wheat and rice? Going up with your beer prices...
Vorpal,
Major changes in the economy mean major disruptions. Shifting from a full-time war economy would be a major change. Major changes in the global security structure would very likely lead to major disruptions of a different kind. I admire the goal of your first step, but let's get there slowly, OK? Start right away, but get there slowly.
Extend the ages on SS and Medicare by three months every year until the Trustees tell us they are in balance? In other words, we will all work for more years.
You believe the trustees? How nice.
SS isn't the problem - about the time it is we can all go to Mars.
Medicare IS a problem & right now but it isn't linked to SS, rather to medical coverage in general - fix that and Medicare problem goes away.
The current budget is the nut we have to bust now & it isn't getting done.
As a result you will NOT see a budget freeze nor is one possible with a two front war that isn't going to wind down anytime soon (unless we decide we don't care about oil all that much - it might not have been about oil in late in '01, it is now).
You want a fix? I'd go for a consumption tax IF you also raised marginal rates a bunch for the wealthiest - I'm saying put a 10% VAT on consumption & then 10% tax surcharge on upper quartile earners... at least until the debt burden problem goes away.
Scared that might put a damper on growth?
Couple the whole package with comprehensive 'harmonization' of all tax classes so cap gains, estate and income tax are treated fundamentally the same... same schedule... individuals & corps alike. Still progressive as hell but same schedules so as to discourage hanky panky.
To help the poor from the harshness of the VAT - increase the per capita income tax exclusion.
Then to encourage & reward the wealthy who invest here, allow for VERY rapid expensing of real investments... and allow for exchange of real investments (cap gains exchanges).
Meaning I buy a machining center for a couple million, I can expense at what ever rate I want to give me maximum tax benefit. But if I expense it all the way then sell it, I pay full cap gains tax on the sale at the same rate as income.
If I exchange it for a different machine of equal value - I pay no tax... until I sell the second machine for cash to consume... then I pay the income tax rate on that(harmonization) and any VAT on crap I buy with the income.
Same with estates - I get a cool million from my late Grampa, and I buy a milling machine... I pay no tax. I take Gramps million & go to the casino, I pay tax up the nose as if income.
In effect treat estates like they were cap gains with zero basis - you wouldn't pay tax on it until you spend it & then you pay tax through the nose.
The difference between this type of system & conservative 'consumption tax' is it puts a big carrot & stick out there to grow the economy via private investment in productive enterprises (not just financial engineering).
Consume and you pay. Save & invest and you pay almost nothing.
Most well heeled folks would invest & save a lot and gov't needs to get funded so that's why you'd need the higher rates on what income they didn't shelter.
However it wouldn't be wasted 'sheltering' unless you think investing in productive assets is a waste.
G
(continued)
Gov't doesn't tell you what to do but does tell you to do something other than piss it away or they will piss it away for you.
We could argue about what is & isn't productive but most folks know when they see it - I'm in small biz, I know.
Oh and I wouldn't allow expensing of stocks or bonds directly - only the hard assets like machines or factories or mines they own. The companies the stocks represent get to do that & pass it on to you as dividends or stock price appreciation (both treated the same, as income).
But I would end double taxation - make the dividend be treated like income... recipient pays the tax, corp takes a write off like it was salary paid. Huge incentive to pay dividends (and then its YOUR problem what to do with the tax burden - maybe invest & expense that too?).
I've bounced this 'plan' off tax wonks - family members who actually teach tax law at university - and they say it would work... but never pass.
My only concern about a system like this is there wouldn't be enough bodies to man all the machines companies would want to buy - that's how much growth their would be. The incentives offered by accelerated depreciation to avoid the nominal tax rate increases would be enormous - those machines would need to be manned to produce income which would also be 'sheltered' by buying more machines.
We'd need a lot bigger fence down south.
Dryfly, I like your ideas. On the whole, whenever I hear consumption tax/VAT/"Fair Tax" (you go, Kirk!) I reach for my gun (rhetorically speaking, children. Calm down.) When I hear SS "reform" I come unglued.
I periodically receive injections of what is called a "colony stimulating factor"--cool new drugs that help the bone marrow produce new white blood cells after things like chemotherapy kill too many of them. Every time I mention the drug name, everybody says the same thing to me: Oh, yeah, I saw that one advertised on TV. (I don't watch TV when I can avoid it, so this still freaks me out.) ONE DOSE costs well over $1,000. In the last six months I've had four doses. And that's just a fraction of the total cost of my chemo regimen; and I'm one of the lucky ones who gets one major drug that is now generic (but still expensive to produce--chemo drugs are major biohazards. But advertising expenses to sell cancer drugs to the general public???) Remember that next time the voice says "ask your doctor about" prescription drugs with brand-new patents advertised on TV. I swear, the next time somebody tries to tell me SS is a bigger problem than the whole medical system/pharma problems that underlie the Medicare/Medicaid problems, I'll find a way to throw up on them over the internet.
Damn right we need to look at government debt in terms of income. But what do people see when they look at medical care as a percent of GDP? That's OK because it's "private" and not "government"? Ack.
I really wish I could still drink. (Yeah, I know. You all wish I could too. Remember how funny I used to be when I'd have an extra glass of Merlot? No? Damn, I thought I remembered that . . .)
Tanta, I agree... there are LOTSA problems with my 'rough concept'... my sis & I have talked about writing a book some day to put flesh on the bones, she is one of the tax wonks I mentioned. She understands tax law inside and out, I understand small biz - make the two work for good for once, instead of evil.
One problem I have with the above version of the 'Code of Dryfly' is leverage.. I would not want to reward firms who buy equipment on credit then immediately expense the investment AND simultaneously expense the interest on the loan... I mean weren't we just talking about too much liquidity a thread or two ago?
There would have to be details & therein resides the devil. I can see work arounds but why waste CR's bandwidth with details.
But the key concept of tax class harmonization with increased progressivity for the wealthy coupled to a consumption tax aimed at the masses - both softened somewhat with targeted exemptions & exclusions - is in my estimation a route out of the swamp.
And if structured right - would all but compel knuckle heads like me to quit blogging and go do something productive like buy machines (and hire no goods like my sons to run them). I think they call that 'growth'.
Sometimes the best ideas come from looking at your mug in the mirror or your family around the dinner table.
Speaking of nominal - the graph would look different if one used the real interest rate instead of the nominal rate especially for the 1970's. For the 1980's - part of the reason for the spike was high real interest rates. Which may be in store for the rest of this decade.
Post above was me... entry malfunction.
And as for costing out drugs - don't even get me started.
You are ABSOLUTELY correct about the marketing-research budget fudging and advertising is only part of the horrors.
I have friends who worked as pharma reps before they got honest work - their budget driving around talking to docs & buying them dinner was out of the 'development budget'... not marketing... as long as (wink, wink) they were there to educate the docs about a 'new' (wink, wink) drug.
I don't know how much of the actual development budget ought to be carried by marketing but it isn't a trivial amount.
If that whole industry doesn't get fixed - we'll have that conversation we had on the other thread (stuff about Trotsky and Mexico and axes) except it will be in the streets & eventually the halls of congress. People will put up with having their miniMansions foreclosed upon because they were morons - they will not sit idle while their loved ones die without even the HOPE of treatment.
There is a difference.
And do take care.
Vorpal,
Major changes in the economy mean major disruptions. Shifting from a full-time war economy would be a major change. Major changes in the global security structure would very likely lead to major disruptions of a different kind. I admire the goal of your first step, but let's get there slowly, OK? Start right away, but get there slowly.
I agree. Then again, if we dragged our feet that would have negative consequences as well. The process would have to be managed.
Heroic thought that legislation that has enabled the wealthy to fortify their positions and accumulations, might seize the moment and realize the error of their ways and become Good Semaritans, distributing their Trillions to the starving Africans as if they were Bill Gates.
The pharma is a relatively new arm compared to the military heist on ordinary working people and thinking that reversals can just be pencilled in is naive...ok, maybe also heroic.
My heart goes out to you and yours Tanta, wishing you a speedy recovery and more.