The Future Of Tax Rates

They can’t go up much more, despite the delusions of the class warriors:

…we’re pretty quickly going to have to start exploring tax increases on people who make less than $250,000 a year . . . or exploring serious spending cuts. Or looking to limit deductions (including yes, the sacred deductions for charitable deductions and state and local income taxes, and the tax-free status of municipal bonds).

Probably, we are going to have to do all three. The era of “Don’t tax you–don’t tax me–tax that fellow behind the tree!” is coming to a close, not because we’re any more in touch with reality than we were five years ago, but because pretty soon, reality is going to get in touch with us.

Yes. As Frank J. says, math is coming:

Obama wants Math locked completely out of the fiscal cliff talks and instead wants unlimited power to raise the debt ceiling and then tax the rich because of the demands of Fairness — Fairness being the left’s favorite imaginary friend. Math won’t stop laughing at Obama’s plan to pay for everything by taxing the rich, so Obama just won’t work with it at all.

The Republicans at least acknowledge that Math exists but are only trying to compromise with it. We’re broke, and Obama wants to buy a Ferrari we can’t afford, and they’re trying to argue him down to a BMW we can’t afford. I guess they think if they make some changes to entitlements, Math will just relent and allow 2 + 2 to equal 5 so the rest will add up.

Our children and grandchildren will curse all this selfishness and irrationality.

44 thoughts on “The Future Of Tax Rates

  1. Martijn Meijering (@mmeijeri)

    Our children and grandchildren will curse all this selfishness and irrationality.

    Or they will repudiate the debt.

  2. Jim

    Or they’ll be grateful that we didn’t needlessly hurt ourselves with ill-timed austerity, when we were better off investing in the infrastructure, educational system, and scientific/technical progress that will be their greatest inheritance.

    1. Larry J

      Education spending in real dollar terms is up significantly since 1960 and academic achievement is down. If there is any correlation between education spending and achievement, it appears a negative one. Likewise, many of the infrastructure investments are little more than sops to construction unions. We no longer have the money for wasteful government “investments.”

      We’re broke. Republicans and Democrats alike have spent the country to the point of bankrupsy in order to buy votes and remain in power. We can no longer afford it. A painful reckoning is coming and the longer they avoid taking necessary action, the more painful it will become. With almost 50 million people getting food stamps, almost 8.5 million on SSDI, millions on long-term unemployment, millions on welfare and 47% not paying any federal income taxes, something has to give. We’ve passed the tipping point where more people are taking than making. I don’t know of any country in history that has ever come back from that without bloodshed.

      Our children and grandchildren will curse all our names.

      1. Jim

        We’re broke

        No, we aren’t. A country that prints its own money can never run out of it. We’ll be broke when we run out of resources, natural and human, that we can use to create new wealth. There is no sign of that happening, and if it were, there are easy fixes (e.g., let in more of the millions of productive people who want desperately to be here).

        We’ve passed the tipping point where more people are taking than making

        You are sadly misinformed. 90+% of Americans pay federal taxes.

        I don’t know of any country in history that has ever come back from that without bloodshed

        Our debt was much higher as a fraction of GDP in 1946. That was followed by the strongest period of growth and prosperity in our history.

        1. someguy

          A country that prints its own money can never run out of it.

          OK, fine. You print so much that each unit is worthless. You don’t technically “run out of dollar bills”, it’s just that what you have has next to no value.

          Distinction without a difference.

          The point is that we are printing money without the backing of actual economic resources behind it.

          The point is if I make $50,000 a year now, and I get no raises, my money loses value because of government inflationary policies, including now unlimited QE3 printing of money.

          So, thanks for letting me know we won’t run out of the pieces of paper known as dollar bills. When a loaf of bread costs me $100 where it used to cost $3, I’ll be sure to remember we haven’t run out of pieces of paper we call dollar bills.

          Our debt was much higher as a fraction of GDP in 1946.

          And the rest of the world was destroyed, so everybody else had to come to us, which was the saving grace. And it was followed by demobilization which brought down the fraction of GDP.

          Jim, the point is in somewhat regular peacetime when the rest of the world is now on somewhat equal footing industrially to us, we are now back at wartime levels of spending without the same wartime conditions with the entire economy spun towards the war effort, including rationing of goods.

          All of our problematic spending is now geared towards wealth redistribution programs, not temporary worldwide wartime conditions.

          1. Jim

            we are printing money without the backing of actual economic resources behind it

            We aren’t short of actual economic resources. Our biggest problem is that a lot of those resources (i.e. millions of unemployed) are sitting idle, for want of demand. We should be increasing demand, not reducing it.

            All of our problematic spending is now geared towards wealth redistribution programs

            So we can no longer afford to provide senior citizens with a measly income and health insurance? We can no longer afford health insurance for the poor and disabled? Really?

          2. someguy

            lot of those resources (i.e. millions of unemployed) are sitting idle

            Merely printing money to distribute across the economy where these people aren’t employed is the same thing as printing money without economic activity backing it up.

            We should be increasing demand, not reducing it.

            The government cannot increase demand in any way that makes sense. The government will only dole out money to whatever programs are politically wanted. Only private economic development can do that, and the government is currently doing everything it can to get in the way of this.

            So we can no longer afford to provide senior citizens with a measly income and health insurance?

            Who is this “we”? Why do “we” have to do anything?

            What have these retired people or poor people done to deserve part of my measly income, merely for being in that state? Yes, that is a serious question.

            When I retire, what have I done to deserve retirement money from somebody else younger than me, merely for the act of retiring? The answer is nothing.

            Just retiring or just not having money is not justification for the forceful confiscation of someone’s else money to give to them.

            All of this stuff used to be taken care of by churches and private organizations, which are not forceful confiscation and redistribution agencies.

            The answer is that no one *deserves* anything except their inherent natural rights, which includes the fruits of their own labor, not the forceful redistribution of the fruits of other people’s labor.

          3. wodun

            Let’s create demand by funneling trillions of dollars to Obama campaign contributors while destroying everyone who didn’t. That should work…

        2. Gregg

          Jim astounds the logical mind by responding to this:

          “We’re broke”

          With this:

          “No, we aren’t. A country that prints its own money can never run out of it. We’ll be broke when we run out of resources, natural and human, that we can use to create new wealth. ”

          So tell me Jim why aren’t we flooded with wealth now?

          We have all those resources….but no one is digging them up…

          Why?

          We have all that human labor potential but they are unused.

          Why?

          Or put another way – You have a family – man, woman, 2 children. None have jobs. None makes money. They have sold everything they have.

          They are broke.

          And yet there’s all those resources sitting in the ground waiting to be dug up – why is this family broke?

          They all have labor hours to contribute but no one has a job for them. And they are broke.

          Why?

          Do you have ANY idea – even the slightest – about economics? I don’t think so. Well I take that back:

          Your comment above would make Marx chortle with glee. Because he didn’t understand economics either.

          As for your first sentence, I really am astounded that you can say that. I mean, don’t your mental gears protest even the slightest at such foolishness? Have you NO concept of inflation and what it does? Hint:

          You can print as much paper as you want but when it’s not backed by wealth or a decent chance of wealth it’s worthless. See The South during the Civil War or Weimar Germany.

          You really need to read some history.

    2. Edward M. Grant

      Japan has spent trillions of dollars of borrowed money on ‘infrastructure’ over the last couple of decades and they’re more broke now than they were when they began. Why should government be any better at picking winners in ‘infrastructure’ than they are anywhere else?

    3. McGehee

      “Austerity” is just another word for “living within your means.” Opposition to austerity is theft.

      And it’s not very day I get to riff on both Kris Kristofferson and Karl Marx in one paragraph.

    4. someguy

      If austerity now is “ill-timed”, when is it not ill-timed?

      When can we gather enough political will to go through austerity at the right time?

      In reality, “austerity” means finally living within our means (at least approaching it). We’ve overspent ourselves and there is no money left to redistribute.

      It has nothing to do with “fairness” or “the economy”. There is no money left. End of story.

      The damage to the economy was put in place long ago through the spending policies that were enacted. And yes, by this I mean Social Security, Medicare, Medicaid, federal welfare, federal government involvement in education, federal housing crap, and everything else like it that is currently comprising about 80-90% of what the federal government is currently doing.

      1. someguy

        Sorry, McGehee, I didn’t read your comment. You already defined austerity and so I didn’t need to.

      2. Gregg

        “There is no money left. End of story. ”

        Almost but not quite……..

        The pols have discovered that not only can they use your money….

        they can borrow against the next generation’s money and kick the can to them.

  3. Curt Thomson

    While the literature on the income elasticity of taxation is varied, no one thinks the effect is zero.

    Hell he needs to check in here now and then. We’ve got several socialists that would argue that at the drop of a hat. See above.

  4. Gregg

    “Or they’ll be grateful that we didn’t needlessly hurt ourselves with ill-timed austerity…”

    Ill-timed austerity…..

    we’ve been borrowing 40 cents on the dollar for years and we are approaching Greece-level debt with the attendant slide into economic disaster…..

    an event you can see happening all over the place if you simply look….Greece, Italy, Spain, Portugal…..Japan for the last 20 years….

    CALIFORNIA…..Illinois…..New York…….

    And you can see with your own eyes the kind of economy you get, for the last 4 years, by not cutting spending drastically……you have seen our rating drop….

    and you say austerity is *ill timed*?????

    The kindest thing I can say is that you are afraid of the short term pain that will come when you cut loose all those government workers….you haven’t got the balls to face short term pain to avoid long term disaster…..

    and you don’t see, or refuse to see, the colossal pain when the entire country slides into depression.

    Just stop and think (I know that’s hard for you)…..

    right now we can borrow that money and pile up the debt and make payments on the interest because the interest rates are low.

    The MOMENT the economy gets a little better interest rates go up.

    And we won’t be able to make the payments…..and we’ll default and/or inflate our way out and you won’t be able to buy a loaf of bread for less than 4 dollars and millions of people on fixed incomes will suffer horribly and you are dumping trillions of dollars of debt on the young and unborn….and more jobs evaporate and tax revenues nosedive……

    Why do you hate so much? Why are you so uncaring about the next generation and the last generation? Why are you so determined to cause so much pain?

    1. Larry J

      The Leftist Demigod Economist, John Maynard Keynes, once said, “The long run is a misleading guide to current affairs. In the long run we are all dead”

      Based on that, why should a modern leftist worry about the future we leave when there are votes to be bought today? Many of them don’t have kids to worry about in the first place, so ruining the future for the descendents of conservatives is just a bonus.

    2. Jim

      Greece, Italy, Spain, Portugal

      None of whom control their currency. Compare the interest rates they have to pay on their bonds (steep), with what we pay (currently negative).

      you have seen our rating drop

      It dropped because the rating agencies wanted to punish Congress for the debt ceiling debacle. There is no question of our ability to pay our creditors, only of our political willingness to do so.

      The MOMENT the economy gets a little better interest rates go up.

      Yes, as does revenue to pay those interest rates.

      dumping trillions of dollars of debt on the young and unborn

      Guess who will own that debt? That’s right, the currently young and unborn. They will inherit lots of treasury bills, and receive the interest payments.

      you don’t see, or refuse to see, the colossal pain when the entire country slides into depression

      The US has never slid into a depression because it borrowed too much. But it is currently suffering colossal pain, just as it did in 1937, because austerians think it is more important to ward off an imaginary future debt boogeyman than to address suffering in the here and now.

      1. wodun

        The credit rating agencies said our government was unable to get our deficits under control. The only people who tried were the TP Republicans. Sure Democrats want to raise taxes but they also are increaseing spending.

      2. Gregg

        Jim writes:

        “” Greece, Italy, Spain, Portugal””

        “None of whom control their currency.”

        Neither does California, Illinois and New York: I see you blithely ignored them. But more to the point, the EU is trying to do what you want to do – and failing. Tax increases are doomed to failure in this climate.

        “” you have seen our rating drop

        It dropped because the rating agencies wanted to punish Congress for the debt ceiling debacle. “”

        According to the ratings agencies they dropped our rating because we cannot get our fiscal house in order – meaning cut spending.

        “” The MOMENT the economy gets a little better interest rates go up.

        Yes, as does revenue to pay those interest rates.””

        Are you really that dense? Look at the situation. Here let me try and help – though I don’t know why – it’s like talking to a rock:

        suppose you have a fixed income family that uses a charge card to survive. They can just barely get by using the card. Since the card company only requires that they pay the interest each month, the principal owed can continue to rise…and it does.

        Now what happens when the charge card company raises the interest rates?

        The families’ financial situation collapses. They can no longer borrow to stay afloat, and they cannot make the interest payments now. They are doomed.

        The US is in the same position. The income is fixed because history proves that tax revenues never make 19%.

        You want to inflate our way out of it but you forget – or didn’t experience – what high inflation can do to an economy. Can do to those fixed income peopel you purport to love.

        Why do you want to destroy their lives? Why do you want to condemn their last years to misery and begging?

        ” dumping trillions of dollars of debt on the young and unborn

        Guess who will own that debt? That’s right, the currently young and unborn. They will inherit lots of treasury bills, and receive the interest payments.”

        What makes you think that interest will be paid? Even if it was, what good are hopelessly inflated dollars going to do for them?

        Why doi you hate the young and unborn? Why are you so callous as to dump millions per person of debt on them before they even exist?

        it would be like you having a kid, borrowing in the kid’s name, you dying, and now the kid has to pay off your debt.

        Why are you so full of hate?

      3. Gregg

        Wait a minute, this statement of Jim’s is even more lunatic than I first saw (I was in a hurry to get back to the woodshop):

        “Guess who will own that debt? That’s right, the currently young and unborn. They will inherit lots of treasury bills, and receive the interest payments.”

        Explain to me how your child “inherits” the T bills? Do you think that the government puts a T-bill in your kid’s portfolio every so often?

        Explain to me how a kid inherits a T- bill when the T-bill is sold to China. If anyone inherits it, it’s an unborn Chinese kid. Or even more perverse these days – the Feds inherit it because they sold it to themselves.

        And where do you think the Feds will get the money to pay the higher interest – YOUR KID!

        So please explain to me how your kid inherits the debt and higher interest rates for the payback, and somehow should cheer for joy? How will your child benefit from paying into the Feds more of his money because he gets to pay a higher rate? Never mind paying off the principle.

        What does that do to the precious increase in demand you so look forward to?

        That would be like you saying:

        “Son, your pops is gonna do you a BIG favor. I’ve run up 2 million dollars on this credit card and the bank has allowed me to get by paying only the monthly interest fee. I can’t afford to pay down the principle. But you know what I’m gonna do for you?

        God I’m such a cool Daddy-o…..

        I’m gonna tell the credit card company to start sending YOU the bill and guess what? tomorrow they are going to raise the interest rate. And YOU will be able to inherit allllllll the cool benefits from that.

        And do you know what the best part is?

        The best part is that I still get to charge stuff on the card!

        I bet you cannot WAIT to start enjoying all those neat higher interest benefits that Jimmers keeps talking about.

        Now I know..I know..you are still gestating. But boy when you are born are YOU gonna love what I did for you.”

        I have come to the conclusion you just say whatever pops into your fuzzy head without the slightest test of reality first.

        I mean, you are just not worth the time.

        PLONK!

      4. Thales

        Guess who will own that debt?

        The Federal Reserve. We don’t have to guess when we know who’s buying it.

  5. Gregg

    Yes…all you have to do is look [from Zerohedge]:

    “Today’s Consumer Confidence data missed by its biggest margin in 7 months, dropped below the year’s average, and saw the largest 2-month drop in over 15 months. All age cohorts lost confidence with the eldest most and it appears those earning over $35k are also beginning to worry (as those between $35k and $15k seem more confident). Over 40% expect stock prices to decline and it is expectations that have plummeted from a hope-filled 80.9 to a 13-month low of 66.5………………..
    [New Home Sales]
    On the surface the number was good, if a slight miss to expectations of 380K, printing at 377K, up from 361K in October, and “the highest in years.” As we said on the surface. Because like the Initial Claims data earlier, where we subsequently learned that the DOL had to estimate the claims data of 19 states (!) as their labor offices were closed for the holiday, it is digging into the data that reveals the reality once more. Sure enough, on an unadjusted, unannualized basis, November saw a tiny 27K houses sold, of which just 2K in the northeast, and 3K in the Midwest. Furthermore, of these 27K actual new home sales, which by the way was the lowest number of home sales since February 2012, 9K were homes still under construction, and 8K were not even started, with just 10k homes completed and now sold. Digging further, on page 3 we found the dreaded (Z) designator in the $750,000 and over category, meaning that a negligible (taken to mean under 500 but usually implying 0) homes were sold in the $750,000 and higher price range. In fact, the only thing that really did soar was the number of homes for sale at the end of the period which rose to 151K: the highest since November of 2011. Yet magically the median month for sale since completion dropped to a tiny 5.3 months, down from 7.2 a year ago.”

  6. Peterh

    I’m thinking that the reckless deficit spending, with no plan to ever pay it back, is itself a tax, targeted mostly at savings and dollar valued assets. Even ignoring the inflation impact, government spending enables taking of goods and services. On that basis, if the House has the guts to hold the line on the debt limit and spending we may get a massive tax cut soon. “Going over the cliff” may be an improvement for the economy over the current government burden.

    But considering they could have done that last time the debt limit came up, and any spending authorization the last 2 years, I wouldn’t count on them having the guts.

      1. Gregg

        I’d go with stupid along with a heavy dash of willfull obtuseness…..

        Only a moron or a person determined to not see what is before his eyes would look at one metric alone, like rates.

        As it has been pointed out a multitude of times to Matula, Gerrib, Jim, and others, the situation is far far different than even the Clinton years and therefore it’s an apples to oranges comparison.

        Article links were provided…excerpts posted…..explanations given…

        all ignored. So I plunk my money down on willfully obtuse.

  7. wodun

    20% of the budget is discretionary spending. The focus shouldn’t all be on SS, Medicare, Medicaid, and Defense.

    1. Jim

      Non-defense discretionary spending was over 5% of GDP in the late 70s. It’s about 3% now, and trending down (it’s projected to be at 2.5% in 2022).

      Non-defense discretionary spending is not the problem.

      1. wodun

        Who cares about percentage of GDP. I am talking about the percentage of our budget. Roughly 20% for defense, 60% for SS, Medicare, and Medicaid, and 20% for discretionary spending.

        What do you want cuts to Medicare or cuts to discretionary spending? We are already cutting the military $1t over the next ten years.

        Plenty of good things to spend money but it is time to prioritize. So do you want health care for old people or government handouts to Obama campaign donors in the green energy field? Feel free to substitue any program in there but only focusing on defense wont solve the problem.

        And I think the military needs cuts too. IMO, the percentages spent in each area of the overall budget are pretty close to where they should be but overall budget is considerably too high. Reduce the budget by $1.4t and leave the percentages the same.

  8. Fletcher Christian

    “Or they will repudiate the debt.”

    Which is precisely what all Western governments (presumably excluding the Swiss, who don’t need to) should do. Frack the banks. Pick up what’s useful in their systems and hardware (precious little, certainly none of the investment arms) for $1 or £1 per bank, as is usual when buying an insolvent company. And fire ALL the staff above counter-assistant level, and cease to recognise their diplomas. And lastly, do some serious investigation with a few to criminal charges – against individuals, not corporations.

    A huge proportion of every country’s national debt is loan interest, paid to people who have done nothing whatsoever useful to earn it. Let them find out, the hard way, what they have done to those of us who work for a living – or used to.

    1. Peterh

      Its not just banks who loans the government money. Lots of bonds are in the hands of individuals. A great many are in the hands of foreign governments, where they serve as incentive to not crash the US dollar. To the extent a bank holds government bonds, I expect they represent customer deposits.

      Also, if the government repudiates the debt no one in their right mind will loan the government more for less than loan shark rates. Which may not be a bad thing.

    2. Gregg

      “Which is precisely what all Western governments (presumably excluding the Swiss, who don’t need to) should do. Frack the banks. ”

      Yeah right. Never mind that zillions of mortgages are held by the banks, and retirement portfolios and life savings and god knows what all else.

      Just screw the banks. They are all fat cats anyway right? Scum – that’s what they are.

      Sheesh…go back to Pitcairn.

  9. wodun

    Our interest payments on debt exceed $400b a year.

    What do you want to do have Medicare or make interest payments? Have a military or make interest payments? Everything needs to be looked at like that. There are many good things to spend money on but not enough money. So do you want green energy stimulus or Medicare?

    Time to prioritize our spending because $400b+ a year in interest payments is not sustainable.

  10. Fletcher Christian

    Oops. That should have been “with a view to criminal charges.” Wodun, I agree with you. My position is that the interest payments should have zero priority.

    Peterh, you may be right. However, that’s not quite what I meant. Many Western governments have spent astronomically huge amounts of money – devaluing all money in circulation and also the savings of individuals – propping up banks whose own actions ought to have put them out of business. Many Western countries, including the UK one, have also shoveled money into the banks in the process known as “quantitative easing”, thus further devaluing the currency.

    I have not yet seen any argument against the simple idea (about QE) that I came up with in about three seconds. You want to stimulate the economy by pumping money into the economy? Then GIVE OUT MONEY. Preferably in cash, and give it to individuals who will spend some or all of it. The money ends up in the banks anyway, of course, but at least it will do some good along the way.

    The UK government has used about £90 billion propping up failing banks, followed by £400 billion pumped in via QE – and the banks have simply kept it. Getting a business loan, however sound the investment, is nigh impossible – and still the banksters give each other six and seven-figure bonuses.

    Time to end it. And some of them, too.

    One more thing; Two of the Big Four banks in the UK (Lloyds TSB and RBS) are majority-owned by UK government. If the government was really serious about promoting lending they could simply order it, in these two cases. “Start lending money or you’re fired.” They haven’t done it. One can only speculate about why – but I’m quite sure money illicitly changing hands has something to do with it.

    1. Peterh

      I agree that QE is a very bad idea. All is does to the economy is pump the price of certain stocks, at the expense of general devaluing of currency. But repudiating QE isn’t the most direct flow from “repudiate the debt.”

      As for stimulating the economy by “pumping in money”, how better to do that than not taking the money in the first place? As I mentioned in another thread, when government spends money it enabled someone to take goods and services from someone else. There is no better stimulus than letting producers enjoy the fruits of their labors.

      As for more ready lending, excessively easy loans under government pressure are one factor in the bubble before the current collapse. In a free market, banks pay depositors and operating expense from profits made lending the deposits to others. Loans made without reasonable expectation of repayment with interest to cover the time value are a losing proposition for such businesses.

    2. wodun

      I understand what you mean by destroying the banking industry but I am not sure that is a wise thing to do.

      Grok this, the Fed is buying up government bonds with QE printed money. What does that mean? Will the governmnet eventually pay off the Fed? Will the government not pay the Fed? What happens if the Fed just writes off an $X trillion loss?

  11. Fletcher Christian

    Sure, Peterh – but it has gone much too far the other way. I keep hearing about sound expansion or investment plans by small to medium sized businesses – made impossible by the fact that the banks simply won’t lend out the money. The reason is twofold; they are still making up the losses caused by their own irresponsibility, and it is easier and safer to get your bonuses by shuffling electrons between banks.

    And BTW, as we all know the money in QE comes out of thin air – a very powerful driver for inflation. The only reason inflation isn’t much higher than it is? Simply put, companies have to sell at wafer-thin margins to sell anything at all.

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