Living beyond your means -- the US

[Aimless]

Okay, so there's all this talk about the US not being able to afford this or that because there's just not enough money.

But a while back we heard that about 40% of your "tax-payers" pay no federal income tax, or even a negative income tax, after all the deductions and rebates (which I suppose may include deductions for state income tax as well) etc. In a recent discussion we also touched on the question of corporate income tax--how much you may have expected to get from it and how much you DO get from it.




So here's what I'm wondering: would it be reasonable to focus on getting more money as well as on cutting spending?

[Wraith]

Money has to come from somewhere. If the US is getting more money, that means someone else is getting less. In a way, you're kinda dumping the spending problem on someone else. Aside from that, in the current economy any increase in effective taxes is going to make things worse.

[wiggin]

On the long term, it is unlikely that spending cuts will by themselves ensure fiscal security for the US (short of a pretty dramatic austerity plan). That being said, I would hesitate to recommend increasing tax rates significantly in the short term. Even in the long term, they should be kept as low as possible. Structural reforms to entitlement spending will help keep tax rates down - increase retirement age, comprehensively work to decrease healthcare costs (e.g. tort reform, insurance reform), etc.

I would argue that streamlining the tax code will help a lot. Getting rid of a few huge boondoggles that cost a lot of money and are needlessly complex would probably help. The mortgage tax credit artificially inflates the housing market, so I think it should probably go (or at least be phased out for higher incomes/bigger mortgages). The AMT, while potentially bringing in more money without the inflation band-aid Congress routinely passes, is just a huge mess and incredibly complex to calculate. Removing it and changing tax rates on some of the higher brackets (plus eliminating other exemptions) would probably be better. There are a bunch more nice ideas out there that fall short of wholesale increases in income tax rates or adding another tax (e.g. a VAT). Hell, reducing interest payments on the debt would probably help quite a bit as well - keeping deficits to 1-2% of GDP will result in significant improvements in debt levels and reduce funding costs. High government spending can crowd out the private market and limit future growth, which is definitely a major concern for the developed world nowadays.

[Lewkowski]

Okay, so there's all this talk about the US not being able to afford this or that because there's just not enough money.

But a while back we heard that about 40% of your "tax-payers" pay no federal income tax, or even a negative income tax, after all the deductions and rebates (which I suppose may include deductions for state income tax as well) etc. In a recent discussion we also touched on the question of corporate income tax--how much you may have expected to get from it and how much you DO get from it.

So here's what I'm wondering: would it be reasonable to focus on getting more money as well as on cutting spending?

Raising taxes is bad for economic recovery. Now getting more money isn't necessarily bad, it just needs to be done the right way. And that is pursing an environment that is friendly to capitalism and business growth. If you allow the rewards of innovation to be reaped without a crushing tax burden you will have more innovation. You will have more efficiency, you will grow the pie which will create a larger economy. With a larger economy a low tax rate can still bring it more money because now the economy itself is larger.

[wiggin]

Lewk, maybe that works in theory, but if the government still promises too much in services that are growing faster than any reasonable expectation for economic growth (e.g. healthcare) you're pretty much going to have to bring in some more money or cut services somewhere. Given the magnitude of the differential, we're probably looking at both.

[Lewkowski]

Lewk, maybe that works in theory, but if the government still promises too much in services that are growing faster than any reasonable expectation for economic growth (e.g. healthcare) you're pretty much going to have to bring in some more money or cut services somewhere. Given the magnitude of the differential, we're probably looking at both.

Well yeah I'm not in favor of cradle to grave socialism...

But in terms of getting more revenue long term the best solution is to foster an environment for growth. We certainty need to cut government programs as well.

[wiggin]

Even if the US managed a trend growth rate of 5% (which would be mind-bogglingly fast), healthcare costs are regularly growing at 6% or more. With an aging population, it's likely this will only accelerate short of some drastic changes. The extra money has to come from somewhere, and either way it's going to crowd out private investment.

[Hazir]

Even if the US managed a trend growth rate of 5% (which would be mind-bogglingly fast), healthcare costs are regularly growing at 6% or more. With an aging population, it's likely this will only accelerate short of some drastic changes. The extra money has to come from somewhere, and either way it's going to crowd out private investment.

Which probably is why Germany is opting for a no-deficit situation.

With regards to the USA; given that there seems not a single politician who's serious about dealing with the deficit at one point economic logic demands that people rethink their decision to actually grow older while not maintaining good health.

[GGT]

With regards to the USA; given that there seems not a single politician who's serious about dealing with the deficit at one point economic logic demands that people rethink their decision to actually grow older while not maintaining good health.

As of 2008, the latest data available, people aged 65 to 74 were spending 12.3% less than they did ten years earlier, in inflation-adjusted terms. They cut spending on cars and trucks by 46%, household furnishings by 35% and dining out by 27%. At the same time, they spent 75% more on health care and 131% more on health insurance.

The impact isn't limited to people on the verge of retiring. Younger people, too, will have to reduce consumption now to save enough money to get by in retirement. That's one reason Richard Berner, chief U.S. economist at Morgan Stanley in New York, estimates that even after the economy recovers, consumer spending will grow at an annual, inflation-adjusted rate of about 2% to 2.5% in the long term, compared to an average of 3.6% in the ten years leading up to the last recession.

http://online.wsj.com/article/SB1000...929070948.html

Paradox of Thrift, Irony of Longevity. Are these Consumption Services almost like cannibalism?

[Dreadnaught]

Okay, so there's all this talk about the US not being able to afford this or that because there's just not enough money.

But a while back we heard that about 40% of your "tax-payers" pay no federal income tax, or even a negative income tax, after all the deductions and rebates (which I suppose may include deductions for state income tax as well) etc. In a recent discussion we also touched on the question of corporate income tax--how much you may have expected to get from it and how much you DO get from it.




So here's what I'm wondering: would it be reasonable to focus on getting more money as well as on cutting spending?

It's of course reasonable, but ultimately I think many Western countries are in a situation where they haven't reduced their spending obligations. So they are hunting for more money, but for all the wrong reasons (IE to fund entitlements and projects that simply can't be afforded).

I'm not sure what comparable data various EU countries looks like, but in the US our tax rates have varied a lot over the past 65 years. Yet our total government revenue as a percentage of GDP has remained roughly 20%. It's known as "Hauser's Law".



http://books.google.com/books?id=X7z...page&q&f=false



http://online.wsj.com/article/NA_WSJ...728420184.html

There are a few flaws with the data, but I think the rough observation makes a compelling point: you can only raise so much revenue from the population before they have a clear incentive to just dodge taxes a-la Italy and Greece. The ultimate solution is for government to stop overcommitting financially, especially in the long term.

[Loki]

It's of course reasonable, but ultimately I think many Western countries are in a situation where they haven't reduced their spending obligations. So they are hunting for more money, but for all the wrong reasons (IE to fund entitlements and projects that simply can't be afforded).

I'm not sure what comparable data various EU countries looks like, but in the US our tax rates have varied a lot over the past 65 years. Yet our total government revenue as a percentage of GDP has remained roughly 20%. It's known as "Hauser's Law".

http://www.gpoaccess.gov/usbudget/fy11/hist.html (look at Table 1.2)

Kind of ironic that we passed 20% shortly after the Hauser chart ends (it also starts 15 years after we collected ~21%). A more important point is that in 2009, we collected the least in taxes since 1950, which is plainly ridiculous (the estimates of when we'll get back to ~19% depend on very rosy predictions). As things stand, we're collecting about $500-600 billion less in revenue than we should be. Of course that's only one side of the ledger. Current spending figures are far above the norm (highest since 1946), and should be reduced by at least 3-4% of GDP to return to historical levels. Unfortunately, I don't see either happening for the foreseeable future, which isn't a good sign for America's financial health. The politicians here have no guts. They absolutely refuse to make tough choices (which is surprising, since most of them have virtually no chance of losing their seats; the Democrats wouldn't even have to worry about primary challengers).

A lot of doctors I know feel pretty strongly that older individuals in poor health should include 'comfort care only' on their living wills for this reason (that and quality of life concerns). Obviously it shouldn't be mandated by law, but it kinda makes sense for us to develop a culture of acceptance for the terminally ill rather than last-ditch attempts to extend life by a month or two.

I exaggerated some with the 'almost entirely', but the bulk of the medical costs in a person's lifetime certainly accrue at the very end of life.

I'd like to see the doctors tell that to their own parents (or to themselves). Of course the doctors probably have enough money saved to pay for their own procedures.

[Nessus]

I'd like to see the doctors tell that to their own parents (or to themselves). Of course the doctors probably have enough money saved to pay for their own procedures.

But that's the point. Current liberal democratic Western culture is pretty much diametrically opposed to the kind of reasoning that is actually called for in the circumstances Wiggy outlined. Life, as much as possible, for as long as possible, life is precious, life is always a value in itself, so on. Old people are hated and negatively stereotyped partly because they remind young consumers that the reality the market propaganda bombards them with is ultimately false and fleeting. People cannot let go, ever, and their gut response to euthanasia and "denying life-preserving care" (which'd only help to keep the patient suffering for another 2 months instead of a week) is horrified disgust, because the thought that they'd be faced with that choice themselves is unbearable. There is no reverence for the dead, only the pity that they could no longer keep living.

So a cultural zeitgeist would be in order. As far as this issue is concerned, anyway.

[Loki]

But that's the point. Current liberal democratic Western culture is pretty much diametrically opposed to the kind of reasoning that is actually called for in the circumstances Wiggy outlined. Life, as much as possible, for as long as possible, life is precious, life is always a value in itself, so on. Old people are hated and negatively stereotyped partly because they remind young consumers that the reality the market propaganda bombards them with is ultimately false and fleeting. People cannot let go, ever, and their gut response to euthanasia and "denying life-preserving care" (which'd only help to keep the patient suffering for another 2 months instead of a week) is horrified disgust, because the thought that they'd be faced with that choice themselves is unbearable. There is no reverence for the dead, only the pity that they could no longer keep living.

So a cultural zeitgeist would be in order. As far as this issue is concerned, anyway.

I'm sorry, but no amount of pleading will override self-interest. People are genetically and socially programmed to like living, and you'll never convince a sizable portion of them that they should lay down and die for the good of mankind. Hell, even Hobbes (writing 400 years ago) noted that man will not (and shouldn't be expected to) fulfill any contract that likely leads to his death.

[Being]

I'm sorry, but no amount of pleading will override self-interest. People are genetically and socially programmed to like living, and you'll never convince a sizable portion of them that they should lay down and die for the good of mankind. Hell, even Hobbes (writing 400 years ago) noted that man will not (and shouldn't be expected to) fulfill any contract that likely leads to his death.

Unless they are so impoverished that it is the best contract they can get. We're getting to the point that middle class is getting close to that.

[Nessus]

I'm sorry, but no amount of pleading will override self-interest. People are genetically and socially programmed to like living, and you'll never convince a sizable portion of them that they should lay down and die for the good of mankind. Hell, even Hobbes (writing 400 years ago) noted that man will not (and shouldn't be expected to) fulfill any contract that likely leads to his death.

Who said anything about pleading? Or self-interest, really, if viewed objectively. Or are you a cultural nihilist, that there was, is, and always will be one culture? That's kinda myopic, my distaste for the humanities notwithstanding. Obviously the amount of cultures which've fostered situations where participants were eager for their own death is diminutive, but a larger amount of cultures have had atmospheres where death and ageing were considered not with revulsion and fear, but hesitant acceptance.

I get the feeling from your response that you think Wiggin and I want to start a series of info-mercials asking people to die quietly, but that's not really what a change in culture entails. And if your next question is "well what do you want to do then, smart-alec?", obviously I will have to throw my hands in the air; I am not aware of any reliable means of changing culture in a designed, purposeful way.

[LittleFuzzy]

Current liberal democratic Western culture is pretty much diametrically opposed to the kind of reasoning that is actually called for in the circumstances Wiggy outlined. Life, as much as possible, for as long as possible, life is precious, life is always a value in itself,

I.e. secular humanism.

but a larger amount of cultures have had atmospheres where death and ageing were considered not with revulsion and fear, but hesitant acceptance.

You know what is pretty much always a component of those cultures? A belief in an afterlife, that death is not actually the end.

[Nessus]

I.e. secular humanism.

Mr. Huggles will prevail! Just because R'lyeh has the left side of the map isn't conclusive proof!

Wait what

You know what is pretty much always a component of those cultures? A belief in an afterlife, that death is not actually the end.

The Nazi volksgemeinschaft idolized death and down-played cliche after-life, though the movement did not have enough time to settle these dogmatic differences either way. I don't see the point of your argument unless you mean to argue that the converse is also true, that atheistic cultures cannot view death through anything else than the lens of hysteric fear and revulsion. Certainly, again, the reverse situation, faithful Christians are absolutely mortified over the idea of the death of a loved one let alone themselves. I will buy your majority argument on the face of it, however, since I asked Low-key to do the same to my own claim. I'm not exactly sure what we're to glean from this vis a vis changing the culture around US "health care" used to prolong one's death, however.

[wiggin]

I'd like to see the doctors tell that to their own parents (or to themselves). Of course the doctors probably have enough money saved to pay for their own procedures.

You're absolutely wrong on this one. The doctors I'm thinking of most definitely did recommend that to their parents, and probably have similar arrangements for themselves planned. I'm not talking about refusing medical care when you're 70 years old, but when you're 90 and you have a chronic condition that isn't going to get better (e.g. aortic stenosis). You can't even reliably perform surgery on a 90 year old because of the poor morbidity and mortality, so you're largely stuck with non-invasive interventions that will ultimately fail - but at extraordinary cost. If you throw in surgery (which many people do, foolishly), the cost skyrockets and the results do not.

The reason why the physicians I know are motivated by this, though, is not cost - they rarely see the money one way or another (most work in hospitals so don't get extra money for performing expensive procedures, and they know Medicare will cover most of the procedures anyway). Oh, sure, cost is part of the calculation, but it's a distant second to quality of life issues. Have you ever watched people die, day after day, in a drawn out, painful process that is only elongated for a few months by medical science? We can normally do this for most people, but it's an awful way to go. Doctors are very aware of this reality and feel that maybe people need to learn when to let go.

And before anyone starts, don't argue this is a cultural thing. Most of the doctors who I've had this conversation with are religiously observant Jews working at top-notch hospitals. Both their professional and their personal lives place an enormous amount of value on preserving life. I think that people who disagree with them are either morbidly afraid of death or haven't experienced the same day-in, day-out reality of the very old dying.

[GGT]

Have you ever watched people die, day after day, in a drawn out, painful process that is only elongated for a few months by medical science?

Yes.

Back to the end-of-life counseling. Doctors have been doing this for ages, and finally asked for some reimbursement for their time. Insurance companies denied these kinds of claims. The issue came before congress for review of Medicare patients and physician payment. That's when Grassley and Palin began the DEATH PANEL hysteria.

[wiggin]

Yes, but Germany's 'zero deficit' (or nearly zero) necessitates significant cuts in services (and some increases in taxes). They have advocated a fairly radical case of austerity, which is predicated on continued demand for their exports. This won't work if the recovery is fragile, and will certainly result in some significant reduction in government services.

I think at the end of the day careful deficit controls are necessary, but aiming for a 'zero deficit' is silly and wholly unnecessary - it just needs to be consistently below growth rates.

The obvious solution can't be simply a fiscal one (e.g. raising taxes/cutting services/etc.). If a growing portion of national income (public or private) is going to pay for a basic need (e.g. healthcare, energy, whatever), there needs to be careful restructuring of the system to contain cost growth. That's the only real solution to the mess.

[Steely Glint]

So they are hunting for more money, but for all the wrong reasons (IE to fund entitlements and projects that simply can't be afforded).

As opposed to the right reason, such as a massive naval build up to counter a fictional threat from the Chinese which is already countered by the existing US naval forces and which would inevitable go nuclear in the event of a conflict anyway?

[Aimless]

I'm interested in this business of simplifying the tax-code and doing away with some of the exemptions. I am wondering this: if you chomp off some of those deductions and exemptions and the like, then wouldn't that influence behaviour in fairly selective ways? Surely there are SOME behaviours and things that you no longer need to keep encouraging through your taxes...

[Dreadnaught]

I'm interested in this business of simplifying the tax-code and doing away with some of the exemptions. I am wondering this: if you chomp off some of those deductions and exemptions and the like, then wouldn't that influence behaviour in fairly selective ways? Surely there are SOME behaviours and things that you no longer need to keep encouraging through your taxes...

Probably a ton of things don't need to be encouraged. But I think the bigger appeal of a simpler tax code is...simplicity. Not having to pay accountants massive amounts of money to sort through your books and file paperwork for myriad tax credits/deductions available to businesses who have lobbied for it.

Or, in the case of many countries over by you, not paying VAT on things that are exempt. The bigger idea is that the government shouldn't be playing political favorites with its tax policy. Rates should be clear and strict to avoid wasting enormous amounts of resources (and creating more confusion) interpreting the tax code.

[wiggin]

Yet the capital gains tax is increasing, which discourages private investment. Sometimes you want to encourage certain activities. It's just that homeownership isn't one of them (IMO); neither is certain numbers of children.

[GGT]

Right, like we can change our Military Might Complex by cutting capital gains taxes.

[wiggin]

Simple tax codes also reduce the possibilities (and incentive) to evade taxes. It's both easier to enforce, and without the complexity most people are willing to pay it.

[Lewkowski]

Even if the US managed a trend growth rate of 5% (which would be mind-bogglingly fast), healthcare costs are regularly growing at 6% or more. With an aging population, it's likely this will only accelerate short of some drastic changes. The extra money has to come from somewhere, and either way it's going to crowd out private investment.

Didn't I just say I don't support cradle to grave socialism? I really think Medicare is going to be the big issue. As SS is adjusted upwards for longevity I think Medicare should too...

[Hazir]

Didn't I just say I don't support cradle to grave socialism? I really think Medicare is going to be the big issue. As SS is adjusted upwards for longevity I think Medicare should too...

Hence my remark about the economic sense of living longer while not staying healthy.

[Lewkowski]

Even if the US managed a trend growth rate of 5% (which would be mind-bogglingly fast), healthcare costs are regularly growing at 6% or more. With an aging population, it's likely this will only accelerate short of some drastic changes. The extra money has to come from somewhere, and either way it's going to crowd out private investment.

Didn't I just say I don't support cradle to grave socialism? I really think Medicare is going to be the big issue. As SS is adjusted upwards for longevity I think Medicare should too...

[wiggin]

Didn't I just say I don't support cradle to grave socialism? I really think Medicare is going to be the big issue. As SS is adjusted upwards for longevity I think Medicare should too...

Won't help much. SS is paid out consistently (with COL adjustments) over the course of a retirement - Medicare is paid out almost entirely in the last 6 months of life.