The Case for Progressive Taxation

[Chung Tran]

Originally Posted by SassySue

I got a job waitressing making $12 with tips, and only reported $5, so I was able to get some food stamps and free babysitting, since I was in a lower income bracket.

and probably increased your Earned Income Credit, right?

I think I get where you're coming from, but... the problem, too, is that there are many people cheating the system that are not under pressure (such as not getting child support).. they are simply criminal.

regarding EIC as a good example.. supposed to be for lower-income earners with children.. to supplement, bring their total income to a supporting level.

but you get unmarried people living together, they have, say, 2 out-of-wedlock children. the Dad will claim one child, the Mom claims the other.. one claims Head of Household, the other single. a Married couple that doesn't lie and say they are unmarried must combine their incomes, which often kicks them out of EIC range.. that same couple, unmarried, reports only his/her own income, each claims a kid, both get substantial EIC.

another outrageous point, regarding EIC.. if a citizen/green card holder is married to an Illegal.. say they have 2 children, the citizen earns $30,000, and the illegal makes $25,000.. a married couple where both are legal can not get EIC,, too much income, out of EIC range.. but the other couple can! the legal partner can claim 2 kids on the $30,000, because for TAX PURPOSES, marriage to an illegal is the same as not being married!

[Tiny]

Originally Posted by Chung Tran

we have been servicing the debt for a long time, many years, and the world is still spinning.. if you are old enough, you remember when Carter was President, and we had about $30 Billion in deficit.. the nay sayers were saying our economic system would collapse under that debt.. our Economic textbooks and pundits declared that increasing debt would spiral inflation.. cause bond interest rates to escalate.

well inflation did spiral, and bond yields jumped.. for a short time.. enter Reagan and a new vision of debt management, not only in the US, but worldwide.. it is not only our Country that has massive deficits.. and this debt has reached crazy proportions, absolutely unheard of or imagined 20-30 years ago.. and?

we currently have the lowest 10 year bond yields in history.. negative interest rates in a few, and growing, Countries. inflation is tame, and has been since the 1980's.

what do you have to say about that?

In looking at the potential for a financial meltdown from too much debt, you'd want to consider the following,

1. Debt as a % of GDP
2. Interest rates
3. Growth of the economy -- As I think you've noted, if GDP growth is good it helps us pay back the debt
4. How much of the debt is owed to foreigners. This is particularly important if the debt is denominated in foreign currencies, which is a problem we don't have in the USA.
5. O.K., the final item I don't really understand, but the fact that the U.S. is the world's largest reserve currency could enable us to bear a higher level of debt as a % of GDP than other countries. I've read that, but am not sure if it's really true.

You saw a meltdown in Greece when government debt as % of GDP approached 170% of GDP. Interest rates went to double digits, mostly because investors and savers doubted the ability of Greece to pay back the debt.

There were meltdowns in Asia in the late 1990's at much lower levels of government debt as % of GDP in places like South Korea, Thailand and Indonesia, maybe 50% or 60% of GDP. In these countries the big problem was too much debt owed to foreigners, a weak currency, and high interest rates. Something similar happened to Argentina around 2001. Because a lot of the debt was denominated in dollars, they had a double whammy. Foreigners were taking their money out of these countries, which caused their exchange rates to get weaker, which made it harder to pay back the dollar debt. It was a vicious circle.

Japan has been able to sustain a very high level of government debt to GDP, in excess of 200%, because interest rates there are very low (in fact negative right now, all the way out past 10 years maturity) and because it doesn't have much debt owed to foreigners. However, economic "growth" has been horrific, often negative.

I believe the current level of government debt to GDP in the USA is around 80%. The problem, in the long term it will inevitably go up a lot, to levels in excess of 250% of GDP, if we don't get entitlements under control. See this from the General Accounting Office:

http://www.gao.gov/fiscal_outlook/fe...tlook/overview

At the much lower levels we have now there's still potential for a crisis. You pointed out what happened under Carter. At that time, government debt as % of GDP was much lower than it is today, around 30%. However interest rates were much higher, and the burden on the government in terms of interest payments was high compared to the level of debt. If inflation kicks up or if for some reason the government has difficulty borrowing and has to pay high levels of interest, then we could get into trouble, like we did under Carter.

The USA historically has bought a lot more from the rest of the world than we sold to them. As a result, foreigners have accumulated a massive share of our government debt, so I wonder if the same thing could happen to us as did to South Korea, Thailand, Argentina, etc. I'm not sure what the probability of that is though, as maybe having a reserve currency would reduce the probability we'd have a crisis. And we don't have the problem they did with debt denominated in foreign currencies.

Anyway, at some point we will have to pay the piper if we keep on the current course. I don't think government debt as % of GDP over 150% is sustainable, and that's where we're headed.

[Chung Tran]

many good points made in your post, too many to list, LOL.. but yeah, just because we are handling the enormous debt at this time, doesn't mean it will always be so.. the converse of what I stated before, is our growth rate; given the enormous liquidity for many years under Obama, should have exploded.. under normal economic conditions it would have.

it is very troubling that we limp along with a 1-2% growth rate.. we would be in recession without ridiculous liquidity, and so would the Western world, for that matter. and if something comes along to spook the bond market, the house of cards collapses.

it is all based on accounting entries, but there is an underlying economy that can still collapse.. and probably will, because all these different countries are following our lead.. increasing debt, de-valuing currency.. it will unravel at some point, but not a singular point where grandkids have to cough up money. instead we will have weak output, and yes, at some point the debt servicing will not keep up.. there will be bondholders and Countries unpaid.

but that's risk for you.. there is risk all over the economic landscape.. anyone who buys an asymptotic 10-year Treasury at today's prices? I don't feel sorry for them.

[SassySue]

Originally Posted by Tiny

In looking at the potential for a financial meltdown from too much debt, you'd want to consider the following,

1. Debt as a % of GDP
2. Interest rates
3. Growth of the economy -- As I think you've noted, if GDP growth is good it helps us pay back the debt
4. How much of the debt is owed to foreigners. This is particularly important if the debt is denominated in foreign currencies, which is a problem we don't have in the USA.
5. O.K., the final item I don't really understand, but the fact that the U.S. is the world's largest reserve currency could enable us to bear a higher level of debt as a % of GDP than other countries. I've read that, but am not sure if it's really true.

You saw a meltdown in Greece when government debt as % of GDP approached 170% of GDP. Interest rates went to double digits, mostly because investors and savers doubted the ability of Greece to pay back the debt.

There were meltdowns in Asia in the late 1990's at much lower levels of government debt as % of GDP in places like South Korea, Thailand and Indonesia, maybe 50% or 60% of GDP. In these countries the big problem was too much debt owed to foreigners, a weak currency, and high interest rates. Something similar happened to Argentina around 2001. Because a lot of the debt was denominated in dollars, they had a double whammy. Foreigners were taking their money out of these countries, which caused their exchange rates to get weaker, which made it harder to pay back the dollar debt. It was a vicious circle.

Japan has been able to sustain a very high level of government debt to GDP, in excess of 200%, because interest rates there are very low (in fact negative right now, all the way out past 10 years maturity) and because it doesn't have much debt owed to foreigners. However, economic "growth" has been horrific, often negative.

I believe the current level of government debt to GDP in the USA is around 80%. The problem, in the long term it will inevitably go up a lot, to levels in excess of 250% of GDP, if we don't get entitlements under control. See this from the General Accounting Office:

http://www.gao.gov/fiscal_outlook/fe...tlook/overview

At the much lower levels we have now there's still potential for a crisis. You pointed out what happened under Carter. At that time, government debt as % of GDP was much lower than it is today, around 30%. However interest rates were much higher, and the burden on the government in terms of interest payments was high compared to the level of debt. If inflation kicks up or if for some reason the government has difficulty borrowing and has to pay high levels of interest, then we could get into trouble, like we did under Carter.

The USA historically has bought a lot more from the rest of the world than we sold to them. As a result, foreigners have accumulated a massive share of our government debt, so I wonder if the same thing could happen to us as did to South Korea, Thailand, Argentina, etc. I'm not sure what the probability of that is though, as maybe having a reserve currency would reduce the probability we'd have a crisis. And we don't have the problem they did with debt denominated in foreign currencies.

Anyway, at some point we will have to pay the piper if we keep on the current course. I don't think government debt as % of GDP over 150% is sustainable, and that's where we're headed.

Do you really think entitlements are what have caused most of the debt? You have got be out of your friggin' mind! Show me proof that we spend most of the current budget on entitlements and I will believe you. The GOP has consistently cut entitlements over the past several decades. The social security trust fund had a surplus until Bush took office. He borrowed from it to cover the wars and tax cuts for the rich. We spend more on military and defense and so called "national security" than any other country in the world. Entitlements are not driving up the deficit. And taxes are lower now than they have ever been in the history of this country. As I said in an earlier post, I do think they should be capped on individuals at 50%, no higher than that. Corporations too, for that matter. Just to put your point in perspective, here's where our tax dollars actually go, and only 10% go to entitlements or safety net programs! We spend too much on healthcare because of the insurance companies. If we had a universal healthcare plan like Europe it would be cheaper.

http://www.cbpp.org/research/federal...tax-dollars-go

[Chung Tran]

see that's the thing.. so-called entitlements are out-of-control, because the money was stolen earlier. it's like buying a week's worth of groceries on Sunday, for you and your spouse, and having nothing left on Saturday, then your spouse saying you can't eat Saturday, because you didn't contribute enough money, or we need that money for clothes.

or something like that

[SassySue]

Originally Posted by Chung Tran

and probably increased your Earned Income Credit, right?

I think I get where you're coming from, but... the problem, too, is that there are many people cheating the system that are not under pressure (such as not getting child support).. they are simply criminal.

regarding EIC as a good example.. supposed to be for lower-income earners with children.. to supplement, bring their total income to a supporting level.

but you get unmarried people living together, they have, say, 2 out-of-wedlock children. the Dad will claim one child, the Mom claims the other.. one claims Head of Household, the other single. a Married couple that doesn't lie and say they are unmarried must combine their incomes, which often kicks them out of EIC range.. that same couple, unmarried, reports only his/her own income, each claims a kid, both get substantial EIC.

another outrageous point, regarding EIC.. if a citizen/green card holder is married to an Illegal.. say they have 2 children, the citizen earns $30,000, and the illegal makes $25,000.. a married couple where both are legal can not get EIC,, too much income, out of EIC range.. but the other couple can! the legal partner can claim 2 kids on the $30,000, because for TAX PURPOSES, marriage to an illegal is the same as not being married!

You have a point, but there are many Americans who do not cheat the system. Why should they suffer? That's why I'm retiring out of the country. I feel my Country has betrayed me. I was honest, paid taxes and worked hard most of my life. I have nothing to show for it. I have a modest amount of social security to retire on, so leaving the states to retire in Mexico is my best bet. My modest income will not go far here. Many baby boomers feel as I do and are in the same boat financially, hence the growing number of expats retiring abroad. More money for Mexico! There are almost one million there now and the number is growing, mostly in Puerto Vallarta.

[Tiny]

Originally Posted by SassySue

Do you really think entitlements are what have caused most of the debt? You have got be out of your friggin' mind! Show me proof that we spend most of the current budget on entitlements and I will believe you. The GOP has consistently cut entitlements over the past several decades. The social security trust fund had a surplus until Bush took office. He borrowed from it to cover the wars and tax cuts for the rich. We spend more on military and defense and so called "national security" than any other country in the world. Entitlements are not driving up the deficit. And taxes are lower now than they have ever been in the history of this country. As I said in an earlier post, I do think they should be capped on individuals at 50%, no higher than that. Corporations too, for that matter. Just to put your point in perspective, here's where our tax dollars actually go, and only 10% go to entitlements!

http://www.cbpp.org/research/federal...tax-dollars-go

You keep making things up. I never said anything remotely like that. However, you've got it ass backwards when you say taxes are lower now than they have ever been in the history of this country. See

http://www.usgovernmentrevenue.com/revenue_history

And also when you say the GOP has consistently cut entitlements over the last several decades. Have you heard of Medicare Part D?

I explicitly said Medicare and Medicaid, not social security, were the big problems IN THE FUTURE. Look at the GAO's breakdown of forecasted expenditures going forward:

http://www.gao.gov/fiscal_outlook/fe...k/overview#t=1

It's health care entitlements and interest on the debt that nuke us. We get federal spending, including entitlements, under control or we're spending 23% of GDP just on interest expense on the federal debt before the end of the century. You think it's a simple matter to raise revenues from the 1% and corporations in the form of higher taxes to fix the problem but that's not going to happen. They don't have enough income. And you jack up tax rates to 75% or 80% and the tax collected may actually go down, as you strangle the economy.

[SassySue]

Originally Posted by Tiny

You keep making things up. I never said anything remotely like that. However, you've got it ass backwards when you say taxes are lower now than they have ever been in the history of this country. See

http://www.usgovernmentrevenue.com/revenue_history

And also when you say the GOP has consistently cut entitlements over the last several decades. Have you heard of Medicare Part D?

I explicitly said Medicare and Medicaid, not social security, were the big problems IN THE FUTURE. Look at the GAO's breakdown of forecasted expenditures going forward:

http://www.gao.gov/fiscal_outlook/fe...k/overview#t=1

It's health care entitlements and interest on the debt that nuke us. We get federal spending, including entitlements, under control or we're spending 23% of GDP just on interest expense on the federal debt before the end of the century. You think it's a simple matter to raise revenues from the 1% and corporations in the form of higher taxes but that's not going to happen. They don't have enough income.

Read my post and look at the link in my post. Ten percent of the budget is currently spent on safety net entitlements. And, yes, you did refer to "entitlements" in your post. And, yes, I did say that healthcare was too high because of the insurance companies. You don't even take the time to read my posts, because you already have your mind made up about me. And maybe we wouldn't have all the debt if Bush hadn't gone to Iraq for no reason at all. Taxes are lower now than they have been for awhile if you look at our history. See this chart if you don't think I know what I am talking about.

http://www.businessinsider.com/history-of-tax-rates#

[Tiny]

Originally Posted by SassySue

And maybe we wouldn't have all the debt if Bush hadn't gone to Iraq for no reason at all.

The truth about today's tax rates, if you think I don't know what I'm talking about:

http://www.businessinsider.com/history-of-tax-rates#

We have very little disagreement on your first point. I would say we wouldn't have as much debt if Bush hadn't gone to Iraq for dubious reasons.

You said taxes are the lowest they've been in history, not that tax rates are the lowest. (I did read your posts.) That's way off base too. There was no income tax until a 3% tax was instituted during the Civil War, which was subsequently abolished. Then a 1% to 6% tax was instituted in 1913, which has since risen, before falling as a result of tax cuts during the Kennedy, Reagan and Bush administrations. Under Obama they've gone up again, the top marginal rate at the federal level from 35% to 43.4%. People talk about the 90% rates in effect during the Eisenhower administration, but don't mention the myriad of loopholes and the fact that only a few people paid at the highest rates.

It's interesting that the graph in your link cuts off at 2008, before the Obama tax increases. And the article was written before the tax increases. It's a little like your Forbes article, which uses some data before other countries besides the USA cut their corporate rates.

[SassySue]

Originally Posted by Tiny

We have very little disagreement on your first point. I would say we wouldn't have as much debt if Bush hadn't gone to Iraq for dubious reasons.

You said taxes are the lowest they've been in history, not that tax rates are the lowest. (I did read your posts.) That's way off base too. There was no income tax until a 3% tax was instituted during the Civil War, which was subsequently abolished. Then a 1% to 6% tax was instituted in 1913, which has since risen, before falling as a result of tax cuts during the Kennedy, Reagan and Bush administrations. Under Obama they've gone up again, the top marginal rate at the federal level from 35% to 43.4%. People talk about the 90% rates in effect during the Eisenhower administration, but don't mention the myriad of loopholes and the fact that only a few people paid at the highest rates.

It's interesting that the graph in your link cuts off at 2008, before the Obama tax increases. And the article was written before the tax increases. It's a little like your Forbes article, which uses some data before other countries besides the USA cut their corporate rates.

You're just making rationalizations to justify your ideology. So be it.

[I B Hankering]

Originally Posted by SassySue

Do you really think entitlements are what have caused most of the debt? You have got be out of your friggin' mind! Show me proof that we spend most of the current budget on entitlements and I will believe you. The GOP has consistently cut entitlements over the past several decades. The social security trust fund had a surplus until Bush took office. He borrowed from it to cover the wars and tax cuts for the rich. We spend more on military and defense and so called "national security" than any other country in the world. Entitlements are not driving up the deficit. And taxes are lower now than they have ever been in the history of this country. As I said in an earlier post, I do think they should be capped on individuals at 50%, no higher than that. Corporations too, for that matter. Just to put your point in perspective, here's where our tax dollars actually go, and only 10% go to entitlements or safety net programs! We spend too much on healthcare because of the insurance companies. If we had a universal healthcare plan like Europe it would be cheaper.

http://www.cbpp.org/research/federal...tax-dollars-go

[Tiny]

Originally Posted by SassySue

You're just making rationalizations to justify your ideology. So be it.

??? My post was all about your statement, first that taxes are the lowest they've been during the history of our country and later that they're the lowest they've been in a while. The link I provided shows total government revenues from all taxes and fees. If by "taxes" you mean specifically "income taxes" and wish to exclude the others, then look at the blue curve in Chart 3.23 and you'll see total income taxes, state plus federal, as a % of GDP are about as high as they've ever been. You're the one making rationalizations based on your ideology. You zero in on the statutory, marginal federal rate and completely ignore what % of their income people actually pay when it suits your purposes, as it does for personal income tax. On the other hand, when it suits your purposes to focus on the effective tax rate, as it does for corporations, you change your story. And you apparently refuse to acknowledge that the top rates on personal income went up under Obama effective January 1, 2013.

http://www.usgovernmentrevenue.com/revenue_history

[dilbert firestorm]

I should point out that social security is not part of the budget. I question that chart lumps it as an entitlement.

[Jackie S]

Originally Posted by dilbert firestorm

I should point out that social security is not part of the budget. I question that chart lumps it as an entitlement.

I thought everything got tossed into the same big pot now.

Or to put it better, bottomless pit.

That being, there is no SS "trust fund", just a big pile of IOU's.

[gary5912]

Originally Posted by SassySue

You have a point, but there are many Americans who do not cheat the system. Why should they suffer? That's why I'm retiring out of the country. I feel my Country has betrayed me. I was honest, paid taxes and worked hard most of my life. I have nothing to show for it. I have a modest amount of social security to retire on, so leaving the states to retire in Mexico is my best bet. My modest income will not go far here. Many baby boomers feel as I do and are in the same boat financially, hence the growing number of expats retiring abroad. More money for Mexico! There are almost one million there now and the number is growing, mostly in Puerto Vallarta.

the country didn't betray you, you betrayed yourself by not being smart enough to save when you were young and why would you go to shit hole like Mexico, good luck