Is the U.S. Bankrupt?

July 16, 2006 8:34 PM

Is the U.S. Bankrupt?[332Kb PDF] Laurence Kotlikoff, writing in this month's Federal Reserve Bank of St. Louis Review, says "yes" - to the tune of $66 trillion! [more inside]
posted by ikkyu2 (67 comments total)

He goes on to construct an engaging model (high-school algebra required) of U.S. government fiscal policy by contrasting generational account (i.e., what the government can derive taxes from) with transfer payments (e.g., FICA, Social Security, Medicare and Medicaid). He finishes off with some whimsical but provocative policy thought-experiments: replace all current Federal taxes and levies with a Federal sales tax (value-added tax); replace Medicare and Medicaid with a voucher-based national healthcare system based on perfect information; and replace Social Security and retirement savings with a government-administered private retirement entitlement for all citizens, which invests load-free in capital markets. Sure to stimulate plenty of dinner-table discussion.
posted by ikkyu2 at 8:34 PM on July 16, 2006

Here's a thought excersize: Rase taxes to fully pay for government programs.
posted by delmoi at 8:39 PM on July 16, 2006

_{err... exercise}
posted by delmoi at 8:49 PM on July 16, 2006

er...raise?
posted by Jimbob at 8:54 PM on July 16, 2006

Not so fast - note that he dumps personal and corporate income taxes as well as the estate tax for a 33% federal sales tax, so prepare yourself for all the standard "regressive tax" criticisms.

Unless you meant "Raze taxes to fully pay for government programs"...
posted by Pastabagel at 8:54 PM on July 16, 2006

Don't worry, the Republican plan is to allow a Democrat to come in, fix all this war and economy mess that Clinton forced us into, and then steal it all back in 2012.

You don't think they could really not allow a scapegoat for all today's woes, do you? Listen to Rush, Coulter, O'Riely, et al. All of todays problems are the Democrats fault. They're running out of scapegoats. America needs a new batch. Not enough to wield any real power, just enough to blame later.
posted by Balisong at 9:01 PM on July 16, 2006

33%? I'd heard most people discussing a 20% National Sales tax, but 33% is a huge amount. It's a hell of a lot more then what most voters pay today, so for the vast majority of people it would be a huge tax hike. Why would people vote for that?

It would also create a huge 'gray' market for consumer goods. Assuming a $300 plane ticket, for purchases over $909 it would be worthwhile to fly to Mexico or Canada, buy something, and come home. The gray market would flourish. What's to stop someone from importing things from china and selling them piece by piece on ebay? It's more costly then using the retail system, but with this tax in place it wouldn't be.

The reason we have these huge deficits is because of the huge tax cuts. Roll back the tax cuts, and the deficits disappear.
posted by delmoi at 9:04 PM on July 16, 2006

Just a dumb question, but why can't we just forget about the public debt, like we did for the past two decades? It seems that either way you cut it, the end result is a recession.

Didn't Germany have a mountainous crapload of debt after WWII, so astronomical that it was nullified?
posted by rolypolyman at 9:11 PM on July 16, 2006

It would also create a huge 'gray' market for consumer goods. Assuming a $300 plane ticket, for purchases over $909 it would be worthwhile to fly to Mexico or Canada, buy something, and come home.

In other words, Europe.

Regarding ebay, etc, presumably a low could be written whereby online merchants are required to add the tax, or payment mechanisms add it in (paypal, credit cards). Though you'd stillh ave a grey market somehwere.

A problem in article's analysis is the failure to take into account such a sales tax on future consumption. If products cost 33% more next year, then I'm not buying as much, income tax or no income tax.

On the plus side, lower consumption would lead to lower natural resource consumption (i.e. lower demand for oil) both here and abroad, as the US is still the largest consumer economy in the world. In addition, this would slow down the economic growth of countries like China and India, manufacturing and service economics, respectively, with whom the US consumer economy is in a symbiotic relationship.

On the downside, we produce nothing in the US, so with lower consumption, all those service economy jobs are getting cut.
posted by Pastabagel at 9:15 PM on July 16, 2006

The reason we have these huge deficits is because of the huge tax cuts. Roll back the tax cuts, and the deficits disappear.
posted by delmoi at 12:04 AM EST on July 17 [+fave] [!]

What? Which tax cuts? The Bush cuts, or the one's going back to Reagan? What's the evidence for this?
posted by Pastabagel at 9:17 PM on July 16, 2006

replace all current Federal taxes and levies with a Federal sales tax (value-added tax)

Why a sales tax is regressive, i.e. that a sales tax benefits the rich at the expense of the poor.

replace Medicare and Medicaid with a voucher-based national healthcare system based on perfect information

Voucher-based programs and savings plans destroy the purchasing power of a government-run health service and shuffle poor people into a private HMO-style managed system that would provide even fewer basic services with lower quality.

The expensive cost of healthcare is nearly entirely due administrative inefficiencies within private health systems, with these systems building large, costly bureacracies to exchange payment and treatment processing and management information.

The Veterans Administration (now Department of Veterans Affairs) is now a recognized model for delivering efficient, quality healthcare, and both it and Canada's Single Payer model can provide lessons for the United States and how its citizens should receive the healthcare that they should be entitled to.

retirement savings with a government-administered private retirement entitlement for all citizens, which invests load-free in capital markets

If I remember right, the US economy was nearly ruined about two or three years ago from international bond volatility, before being bailed out by investors. It wasn't widely reported. I doubt the government can manage this program without serious corruption, global speculation or stupidity turning people's retirement funds into dust.

Via http://www.fms.treas.gov/fr/05frusg/05frusg.pdf:

"The federal government’s gross debt in the consolidated financial statements was about $8 trillion as of September 30, 2005. This number excludes such items as the gap between the present value of future promised and funded Social Security and Medicare benefits, veterans’ health care, and a range of other liabilities (e.g., federal employee and veteran benefits payable), commitments, and contingencies that the federal government has pledged to support. Including these items, the federal government’s fiscal exposures now total more than $46 trillion, up from about $20 trillion in 2000. This translates into a burden of about $156,000 per American or approximately $375,000 per full-time worker, up from $72,000 and $165,000 respectively, in 2000. These amounts do not include future costs resulting from Hurricane Katrina or the conflicts in Iraq and Afghanistan. Continuing on this unsustainable path will gradually erode, if not suddenly damage, our economy, our standard of living, and ultimately our national security."

Sure to stimulate plenty of dinner-table discussion.

Our leadership is running this country in an unsustainable fashion, that much is clear.

I doubt that blaming poor people — as such aforementioned solutions do — for the state we're in will do much to solve the issues we all face. Nor will destroying the middle class or making poor people poorer will help.

I hope that rich people have enough instinct for self-preservation that they correct the course they have put us all on.
posted by Mr. Six at 9:20 PM on July 16, 2006

-------------------------------------------------------------------------

OK, I finished my shower; I figure that's about long enough for the interested reader to have finished reading the linked article.

Shall we begin discussion? Perhaps the allegation of regressive taxes on the sales tax could be addressed first, with discussion of the means Kolitsky proposes to alleviate that problem. (Hint: it's near the end of the article.)
posted by ikkyu2 at 9:21 PM on July 16, 2006

A commentary [PDF] on Kotlikoff's article.
posted by brain_drain at 9:22 PM on July 16, 2006

blah, blah, blah... national sales tax... abolish personal and corporate tax... watch the government whither away...

Until I see some sort of evidence for why a sales tax (or any other type of flat tax) is more fair than a progressive tax structure there's no way I would vote for something like this.
posted by bshort at 9:28 PM on July 16, 2006

I don't think, by the way, that Kolitkoff's nutty suggestions are the main focus of the article. Rather, the model of generational account and transfer payments is what's interesting, especially the analysis of potential increases in worker productivity and Chinese indirect and direct investment.
posted by ikkyu2 at 9:29 PM on July 16, 2006

Kotlikoff published a shorter version of the article in The Economist's Voice a few months ago. That version focuses on his proposed solutions, though, which are a dime a dozen.
posted by gsteff at 9:29 PM on July 16, 2006

What I find amazing is that so many wealthy people want to throw away the very governmental structures that they became wealthy under and replace them with a system that is not used in any prosperous first world country today (or, as far as I know, any country at all). Why don't they ever realize that they became successful and wealthy precisely because of the government we have?
posted by bshort at 9:31 PM on July 16, 2006

Capitalism relies on consumption. If you shift 100% of government receipts onto a sales tax, you are banking on steady consumption over time, and that your tax will not deter people from consuming.

The problem is, consumption isn't steady, and a 33% tax would make people be more conservative in their consumption choices.

Worse still, you'd need to impose this 33% tax on everything, or run the risk of the tax-free item becoming a substitution, e.g. making groceries tax-free would give people an incentive not to eat out, jeopardizing the restaurant industry.

As much as people hate income taxes, they are the fairest method of collecting revenue short of making all government services fee-based.

Oh, and then there's the "perfect information" part. Yeah, right. "Perfect information" can only be found in a "perfect vacuum" right next to the "great American novel" and the "sugar substitute that actually tastes like sugar."
posted by dw at 9:33 PM on July 16, 2006

Here's an online federal budget simulator.

By cutting the military 30-70% (gee, how will they survive on $300B/yr), eliminating the Bush tax cuts on the upper class and halving those for the upper middle class (up to $150k), I get a $80B/ deficit.

As for medicare costs, which are the elephant in the room, one word: nationalsinglepayersystem.
posted by Heywood Mogroot at 9:41 PM on July 16, 2006

Incidentally, does anyone else have problems with the equations in the pdf file? To me, they appear to be gray rectangles, or in some cases, the subscripts and superscripts are gray squares and rectangles.
posted by UrineSoakedRube at 9:42 PM on July 16, 2006

Using the budget simulator Heywood Mogroot linked, I eliminated the deficit by (i) cutting general defense spending by 10%, (ii) cutting Iraq/Afghanistan spending by 50%, and (iii) eliminating the 2001/2003 tax cuts. Easy!
posted by brain_drain at 9:51 PM on July 16, 2006

Perhaps the allegation of regressive taxes on the sales tax could be addressed first, with discussion of the means Kolitsky proposes to alleviate that problem.

The problem with the "solution", as such, is that the country has a negative savings rate.

When you implement a sales tax that recovers revenue by taxing necessary consumption (gas for your car, let's say, or public transportation tokens, food to eat to survive so that you can work the next day, etc.), you reduce purchasing power.

While the wealthy would not suffer under such a scheme, low income earners presently unable to save or who have no savings will be even deeper in debt when they must rely on onerous credit to survive.

A regressive tax is called regressive for a good reason.

A regressive tax contributes to destroying democratic governments — destroys democratic society and the rule of law — by turning countries into Third World autocratic wastelands like El Salvador.
posted by Mr. Six at 9:53 PM on July 16, 2006

The reason we have these huge deficits is because we are unwilling to maintain spending at a level we can afford. It's really that simple.

Here's a quote of an earlier comment I posted:

"Heywood, [few words removed for clarity] according to the GAO (the government's own accountants), we will exceed fifty trillion dollars in debt sometime this year. We were at about twenty trillion in 2000. Bush has incurred more debt than all other presidents combined.

The 'debt' figure they cite so often is just money we've actively borrowed from people. 'Debt', as defined by the GAO, is computed to GAAP standards... the same standards to which publicly-traded corporations in the US must adhere. In GAAP, debt isn't just the money you have already borrowed, it's money you've promised to pay in the future.

By their computations, and these guys are as fiscally conservative as they come, the NET PRESENT VALUE of all known liabilities we have assumed was 46.something trillion dollars at the end of 2005... and should exceed fifty trillion this year. Net Present Value means we need fifty trillion dollars in the bank, right now, earning 6% interest to pay off our future liabilities.

Fifty trillion dollars is $375,000 for every working adult in this country. That's $375,000 RIGHT NOW, earning interest, not just money we'll earn someday.

Do you work? Do you own a nice house? I've got some news for you, and you're not going to like it much."

Here's the actual text of the report direct from the GAO. These are the people that know, better than anyone else on the planet, the state of the US government's finances.

Bush's tiny tax cut is of no significance whatsoever compared to this looting of the country's treasury. It's just a misdirection move so that you don't see what the other hand is doing.
posted by Malor at 10:01 PM on July 16, 2006

We are not going to pay out these entitlements. In 2030 I envision 70- and 80- somethings living in buildings reminiscent of urban housing projects where they are provided food, shelter, and basic health care. The idea that all of the boomers are going to get $1500/month from the govt for the rest of their lives can't happen, and therefore won't happen.
posted by Crotalus at 10:14 PM on July 16, 2006

The idea that all of the boomers are going to get $1500/month from the govt for the rest of their lives can't happen, and therefore won't happen.
posted by Crotalus at 1:14 AM EST on July 17 [+fave] [!]

I agree. Anyone under 40 should just assume they will get no Social Security, but that they will have to continue to pay it. And I'm under 40.
posted by Pastabagel at 10:19 PM on July 16, 2006

Just a dumb question, but why can't we just forget about the public debt, like we did for the past two decades? It seems that either way you cut it, the end result is a recession.

I'm sure the former Soviet Socialist Republic thought they could just float all their debt indefinately, too.

I also know that there will be nothing for me in the Social Security net when I get of age. That's why genXers should be encouraged to do more eXtreme sports. Die young, while having fun. Old age will be a serious bummer.
posted by Balisong at 10:46 PM on July 16, 2006

This is fun, but no discussion on federal taxation is complete without a reference to Edward McCaffery's "Fair Not Flat" tax! You can get a more academic treatment here (or search Lexis or Westlaw).

Here's the gist:

1. Economically speaking, Income = Consumption + Savings.


2. Rich people don't pay much under the current income tax system because they live off their capital, not their labor. At a very basic level, if you have an asset which is appreciating in value, you can borrow against it and spend. Borrowing is not income; it's negative savings. You think Steve Jobs is starving because he's not getting a salary? What about William Clay Ford, Jr.?


3. It's possible to recapture some of the rich folks' consumption by implementing a progressive consumption tax. The change doesn't even have to be that drastic. You can shift the tax base from income to consumption by recognizing that Consumption = Income - Savings. We already report our income to the IRS. If we exclude savings from that number, we are left with consumption. Note that the existing progressive framework doesn't have to change (although the rates most likely will).

posted by psp200 at 10:48 PM on July 16, 2006

I like the idea of an automated payment transaction tax. It's an old idea but now that bank transactions are actually all automated, it would be possible to implement it.
posted by aeschenkarnos at 11:09 PM on July 16, 2006

"The Veterans Administration (now Department of Veterans Affairs) is now a recognized model for delivering efficient, quality healthcare..." -- Mr. Six

I don't know much about economics, but I've been to several VA hospitals. Apart from Walter Reed, these facilities provide America's worst health care--long waits, shoddy service from the cheapest clinicians available. The reason is the same that all our social programs are breaking down. Too many promises, too little math. And I say this as someone who believes strongly in the social safety net.

The problem is that needs grow geometrically. Every generation, our social programs need to double their capacity--at the scale of tens of millions. This is a difficult objective to accomplish, even without politicians either trying to destroy these programs (R), or fight this sort of destruction by pretending the programs will take care of themselves (D).
posted by Nahum Tate at 11:12 PM on July 16, 2006

All of this doomsaying about Social Security plays right into the Bush agenda. The fact is that Social Security can be stabilized to the end of the century with some rather minor changes. Bush wants you to believe that it is doomed so that he can dismantle it and by echoing that vicious propaganda, you further his cause.

Now Medicare -- that is another matter and something drastic will have to be done, but Social Security -- not so much. Conflating the two issues is intentional in order to mislead and confuse.
posted by JackFlash at 11:15 PM on July 16, 2006

All you 'regressive! regressive!' people are encouraged, again, to read the article. (Do you guys show up at local book clubs where you haven't read the book and just start yammering, too?)

The proposed VAT is rebated for poor people monthly, in such a way that the poorest people essentially get a government handout monthly (their rebate exceeds the amount of VAT they're paying.)

With regard to urban housing projects where old folks live and get food, shelter and basic healthcare BY 2030: you guys need to visit a Kaiser assisted-living facility (if you're in California). These are already in place nationwide, and how nice they are is exactly proportional to how rich you are. Long-term care is the elephant in the room - no one's talking about it because no one can afford it, but I bet it'll be on everyone's talking points by 2012. (See Tom Disch's 334 for an ultra-dystopian take on the topic.)

When I started working in the University of California system, I was amazed to learn that UC employees don't pay into Social Security. Instead, 7.6% of their pay is contributed into an IRA-like vehicle, managed by Fidelity Investments. So the smart money - California's largest employer, with all the political clout that entails - have already 'opted out' of Social Security, a massive vote of no-confidence. I feel guilty about this, but on my own behalf I'm also rationally quite pleased; I know that the 'renegotiation' everyone's referring to is going to deprive me of the benefits I'm presumably paying for.
posted by ikkyu2 at 11:18 PM on July 16, 2006

I don't understand why they don't just get the treasury to print 66 trillion more dollars...
posted by wigu at 11:19 PM on July 16, 2006 [2 favorites]

Malor: We have actuarial assumptions to respect wrt SSI payouts, but I'll note that $26T of the GAO's fifty-trillion scare number is Medicare Part D.

As for this:

Net Present Value means we need fifty trillion dollars in the bank, right now, earning 6% interest to pay off our future liabilities.

No, it doesn't. Somebody correct me if I'm wrong, but (from what I grok about this crap) that would be the case only if the USG never took in another dime of tax revenue.

Granted, I'm pretty sure Bush along with the past, present, and next Congress are going to be leaving us a $10T deficit along with ~$500B/yr in interest payments, with a scary-looking actuarial prospect for the 2010s (as baby-boomers start leaving the labor force), but IMO this crisis BS is just being generated by people who want to trash-can the postwar redistributive state.
posted by Heywood Mogroot at 11:20 PM on July 16, 2006

Heywood, this is the GAO. Did you actually read the link?
posted by Malor at 11:25 PM on July 16, 2006

I don't understand why they don't just get the treasury to print 66 trillion more dollars...
Step this way into the hyperinflation room.
posted by rolypolyman at 11:35 PM on July 16, 2006

I don't understand why they don't just get the treasury to print 66 trillion more dollars...

The short answer: Inflation.

The long answer: Inflation. Coming soon to a superpower near you!
posted by ikkyu2 at 11:36 PM on July 16, 2006

Unfortunately for Laurence Kotlikoff's book sales, he doesn't really get to decide now does he?

All he's selling is conversation starter until we see real actual international comment on some such.
posted by dobie at 11:36 PM on July 16, 2006

I don't understand why they don't just get the treasury to print 66 trillion more dollars...
posted by wigu at 11:19 PM PST

Who says they ain't?
posted by rough ashlar at 11:48 PM on July 16, 2006

Everytime I read papers like this I don't think so much about the problem (not that don't care its just I can't do anything to change it), but more so about how to profit from it.

The US Dollar is in decline, and has been for a while because of multiple factors, those deficits included.

The country isn't going to default on it's debt, but there I do believe there is significant pain on the horizon and a couple of years ago restructured my portfolio with this in mind. So in terms of my own investment activities, I like Gold & Oil, and I tend to avoid any US company unless it derives a significant percentage of it's revenue internatinally.

I've long held the opinion that the US would inflate their way out of those deficits; a few years of blistering inflation would severely chop away their magnitude in real terms.
posted by Mutant at 11:58 PM on July 16, 2006

I was amazed to learn that UC employees don't pay into Social Security. Instead, 7.6% of their pay is contributed into an IRA-like vehicle, managed by Fidelity Investments. So the smart money - California's largest employer, with all the political clout that entails - have already 'opted out' of Social Security

My understanding from casual conversations and brief googling is different:

The clever money finagled a way to avoid paying their half of social security taxes on theoretically part-time employees, because California can be really fucking cheap about some aspects of its universities. It's a way to seriously fuck over some employees who mostly aren't in a position to fight back.
posted by ROU_Xenophobe at 11:59 PM on July 16, 2006

"I don't understand why they don't just get the treasury to print 66 trillion more dollars..."

Curiously, The Fed stopped publishing M3 data recently; this very broad measure of money in circulation would have shown such an increase.

Some people have been trying to back into M3 on their own, I've never really heard a proper explanation for why The Fed stopped. Another reason why I'm avoiding US investments in the near to intermediate term.
posted by Mutant at 12:04 AM on July 17, 2006

this is the GAO.

(insert dramatic music)

Did you actually read the link?

I skimmed it for the $26T for Part D, which I now see I read wrong (it's 1/3rd of the $26T increase in future liabilities from 2000). Otherwise it's got too-low a S/N ratio for useful discussion.

IMO Infinite-horizon projections are completely pointless, since small errors create noise the further you project.

fwiw, your assertion that we need $56T in the bank today earning $3T/yr interest to pay for these future obligations is just screwy IMO. With our reasonably healthy-looking population pyramid, I don't see any major fiscal crisis in the next 50-odd years... the monies we pay to old geezers now will be either be spent on consumption, returning to the economy, or saved and passed on to the next generation.

All this spending on future Medicare is GOOD in my opinion. We should spend more; it means more jobs for everyone, less pain, a more productive citizenry.

Here's my thinking here; without redistribution, only the upper class can actually live a life of retirement (that's my private definition of "upper class" ... living entirely on capital income); the middle class can theoretically save for it, while the lower class simply lacks the income to sock away for retirement, so they work until they drop... nearly half the country actually spends more than they earn...

frankly, IMO without a LVT regime we're just chasing our tails wrt tax policy, but I guess that is neither here nor there.
posted by Heywood Mogroot at 12:12 AM on July 17, 2006

ROU_Xenophobe: I think you're right about that. UC seems to have a two-tier retirement system; docs like me get the full Fidelity-managed thing I described, plus a chance to max out a 403(b) and a 457(b) - the so-called 'top hat' package.

Other employees have a pension plan that's in the process of being gutted; I see all over the hospital that they're wearing buttons that say "Hands off our pensions."
posted by ikkyu2 at 12:59 AM on July 17, 2006

Kotlikoff is a long-time proponent of a national sales tax replacing the income tax. He started out in the early 90s on this theme writing for the libertarian Cato Institute.

His numbers for a 33% sales tax don't even pass the back of the envelope test. A 33% sales tax is the equivalent of a 25% income tax (internal rate). The bulk of income taxes currently come from people in the 33% and 35% tax brackets so replacing it with the equivalent 25% tax rate can't possibly work. Second, wealthy people only spend a small portion of their income and save or invest the rest. Let's assume they save half their income. That means their effective tax rate is only 12.5% (in equivalent income tax terms) since they are taxed only on the half that they spend. What that means is to produce the same revenues as the current tax system, a more realistic sales tax rate would have to be at least 50%. I'm sure that's going to be real popular. Keep in mind that this would be on top up the state sales taxes. And those states that currently have income taxes would probably have to replace them with higher sales taxes since they tend to piggy-back on the federal income tax structure. So add another 10 or 20 percent to your total sales tax. All of a sudden it doesn't seem so appealing.

As for whether it is progressive or regressive, just look at the numbers. Kotlikoff says that they will rebate to low income people, but those people currently pay little or no income tax, so nothing gained there. But when you move to the middle class things change drastically. The middle class currently pays an effective rate of about 20% in income taxes, plus 7.5% for FICA. Compare that to a 50% sales tax (33% in equivalent income tax). That is a big hike. And as I pointed out above, no matter what the middle class rate you choose, since they spend almost all of their income and the rich spend, say, half of their income, the rich are paying a rate only 1/2 of the middle class. No wonder the wealthy are so eager for a sales tax.
posted by JackFlash at 1:23 AM on July 17, 2006 [1 favorite]

plus 7.5% for FICA

~14% for FICA/MEDICARE. The "employer contribution" is really paid by the employee, even if they don't know it.

since they spend almost all of their income

it's my general apprehension that the middle class tax cuts went right into land valuations ... sure, the middle class (with 2.5 kids) got $2000 or so in tax cuts, but isn't all that money now going toward a higher mortgage payment (for the equivalent house).
posted by Heywood Mogroot at 2:30 AM on July 17, 2006

Speaking of going bankrupt, who the hell gave the permission for the USG to auction off one of our tropical islands?
posted by Heywood Mogroot at 2:39 AM on July 17, 2006

It's not strictly a double post but I do want to point out my previous comment on the main link.
posted by scalefree at 4:07 AM on July 17, 2006

Year that a signboard tallying the U.S. national debt was erected near Times Square: 1989[Douglas Durst (N.Y.C.)]

Year in which it is expected to run out of digits: 2007

Harper's Index, June.
posted by yoga at 4:41 AM on July 17, 2006

I agree. Anyone under 40 should just assume they will get no Social Security, but that they will have to continue to pay it. And I'm under 40.

And the more that you say that, the more likely it is that that will be the case. The fact is, we can "save" Social Security pretty easily, and it won't require a major restructuring that would effectively kill it.
posted by bshort at 5:39 AM on July 17, 2006

I can't wait until the government starts their yearly fund-raisers ala public radio with the president getting out there with impassioned pleas to support our nation and give $500-$1000 for a free USA t-shirt. All donations are tax-deductible.
posted by JJ86 at 5:57 AM on July 17, 2006

The fact is, we can "save" Social Security pretty easily, and it won't require a major restructuring that would effectively kill it.
posted by bshort at 8:39 AM EST on July 17 [+fave] [!]

You can't save it by sacrificing everything else. What is this easy solution that won't require any major changes? Change the retirement age to 85?
posted by Pastabagel at 7:59 AM on July 17, 2006

Instead, 7.6% of their pay is contributed into an IRA-like vehicle, managed by Fidelity Investments. So the smart money - California's largest employer, with all the political clout that entails - have already 'opted out' of Social Security, a massive vote of no-confidence.

Say, I have one of those IRA-like vehicles - in fact it is an IRA managed by Fidelity Investments. They have managed to increase its value by about zero percent over the last fifteen years. How's the one they manage for the Smart Money doing? Does the Smart Money even care, because it isn't their retirement?
posted by Kirth Gerson at 8:13 AM on July 17, 2006

What is this easy solution that won't require any major changes?

Raise the contribution phase-out to $150k.
posted by Heywood Mogroot at 8:24 AM on July 17, 2006

You can't save it by sacrificing everything else. What is this easy solution that won't require any major changes? Change the retirement age to 85?

Supereconomist and Clinton labor secretary Robert Reich isn't worried. I can't find a link, but the social security trustees issue three projections in their annual report, and historically, the optimistic projection has tended to be the most accurate. Reich, who served as a trustee, thinks their growth assumptions continue to be too pessimistic.
posted by gsteff at 8:50 AM on July 17, 2006

Ah - Robert Reich. To think, I almost got to vote for him for governor. Instead, we wound up with a hairdo named "Mitt."
posted by Kirth Gerson at 10:18 AM on July 17, 2006

The
US
is
bankrupt
in
more
ways
than
one.
posted by nofundy at 11:46 AM on July 17, 2006

Maybe we can take care of seniors like we take care of highways: "Adopt a Senior." You'll be volunteering to scrub down some old granny once a week, and to stash a week's worth of instant microwave meals in her freezer.

Live young, die fast, because you're gonna be fucked if you let yourself get old.
posted by five fresh fish at 12:44 PM on July 17, 2006

An article on the M3 that Mutant mentioned that's an interesting read.

Raise a 33% sales tax, raise an angry lynching mob, regardless of its actually effects on the economy.
posted by 517 at 1:34 PM on July 17, 2006

One acronym: VAT. If we had a value-added tax on all items over say ~$100 we would continue to make groceries and many other items affordable, but improve our ability to tax those who use higher prices items and services.
posted by parmanparman at 2:48 PM on July 17, 2006

It will be hard to save Social Security as we presently know it, becaue it entails either (a) sharply raising the early and regular retirement ages to the point where a lot of people lose their prime retirement years and/or (b) transforming it from a kind-of retirement scheme into an outright welfare scheme, by uncapping the taxable income while retaining caps on benefits, means-testing benefits, or both.

However, there's nothing sacred about Social Security as we presently know it, and I expect that it will end up repurposed as a welfare plan of sorts.

Medicare is simpler: it is utterly impossible to save Medicare as we know it. 2.9% of wages from work is miles from the revenue which will be needed to pay for the healthcare of Baby Boomers during their long retirements...

The real question with all of this is whether, with the increasing mobility of capital and labor, the high value tax base will stick around to pay for the added taxes. It's a question that Western Europe and Japan will face to an even greater extent though, so we won't be alone.
posted by MattD at 3:02 PM on July 17, 2006

Capitalism relies on consumption. If you shift 100% of government receipts onto a sales tax, you are banking on steady consumption over time, and that your tax will not deter people from consuming.

why? a goods & services tax also deters people from saving since the purpose of saving is consumption and your future dollars will be just as impacted by a sales tax as your present dollars.
posted by drscroogemcduck at 5:05 AM on July 18, 2006

I had the privilege of playing in National Security Decision Making Game last weekend. Players take on roles in the governments of various nations, and govern as best they can given outside influences, events, and crises. The game has military, economic, civic and of course political aspects to it.

I drew the middle-of-the-road senator as my role. After securing my position as majority leader, I sat down with the other senate players and started ironing out next year's budget. Friends, it is a mess. A huge portion of our nation's taxes go to paying the interest. Huge. My role's interests included making that number smaller.

Me and the conservative senator railroaded a budget that doubled our spending to pay down the principal of our national debt. We could not cut the military, because that would be political suicide for us and it would never fly anyway. We couldn't get the liberal senators on board, because all they wanted was to tax tax tax spend spend spend, not cut spending. The wars on terror were heating up, and the joint cheifs and homeland security were both screaming for more money.

We cut lots of state spending and foreign aid and threw that money into paying down the debt, but the liberal senator and the media player went ape shit on us. Eventually we got it all worked out and passed a budget but the president had a wish-list and when we didn't accomidate all the stuff he wanted he vetoed our budget and we were forced to impose last years. If he had only TOLD us that he was working on a plan for energy independence we could have made some consessions.

These are hard problems. In the second year we finally made a compromise and started paying down the national debt. It's hard though. You have to spend 10 billion in year 1 to save 1 billion in interest payments in year 2. We also cut taxes 1/2 of a percent, and GDP jumped from 2.15 to 4.85% in the game's economic model, though our fiscal discipline and excellent foreign policy victories might have helped a bit there.

It all comes down to growth. You've got to get GDP growing, and then when times are good the hard decisions become easier. In the year we got that almost 5% growth, we did the budget and came up with a bunch of extra money we didn't know what to do with.

It's an easy thing to say, "Cut the military by 30%". But when you have a situation room that shows our nation's deployment's in korea, iraq and everywhere else, you need to think twice. Especially when bioterror cells start popping up in Myanmar and Korea starts lobbing test rockets towards Hawaii.

Then I ran against the sitting president and lost, that smug bastard.

Great game though.
posted by illuminatus at 9:47 AM on July 18, 2006

Well, I don't feel as bad about buying all that wine now..
posted by Hicksu at 11:20 PM on July 19, 2006

New York Times article discussing Kotlikoff's paper.
posted by brain_drain at 11:59 AM on July 23, 2006

"Did you actually read the link?"

*double take*

What? We're supposed to actually READ the links? I been here six years! Why didn't anybody tell me?

All I know is, Clinton fixed the economy eight years ago. When Clinton was in office I wasn't rich but I wasn't hurtin'. Bush plays national governor for eight years, and now I'm having to work overtime to make ends meet, living hand to mouth from paycheck to paycheck with no job security, no medical insurance, and no safety net. I always had a job when Clinton was in office, but I've been unemployed twice since the republicans regained control. Is the correlation coincidental?

Play with the numbers all you want. It's the economy stupid and any president who doesn't make decisions with that mantra is just beggin' for a 34% approval rating up his bunghole.
posted by ZachsMind at 12:34 PM on July 23, 2006

2% approval rating among the black community.
posted by five fresh fish at 12:40 PM on July 23, 2006

Is the correlation coincidental?

I noticed exactly the same thing happening to me after Reagan took office, and again with both Bushes. Those people who say "If you want low unemployment, vote Republican?" - they're total idiots.
posted by Kirth Gerson at 7:06 PM on July 23, 2006