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Long Term Space Budgeting

In Monday's part 1 of "VSE and the Retirement of Baby Boomers," Charles Miller and Jeff Foust port the conventional wisdom about budgeting to the space discussion. These are two of the most well-read, connected and smart people on space topics. I'd like to give folks addressing this issue some more texture to add some items that are not part of the conventional intergenerational budget debate which can be summarized perennially as "vote for me or things will all go to hell pretty soon if they aren't already there", but every year real personal income rises and real government spending minus interest payments rise; life expectancy goes up and almost all the Cassandras are proven wrong, but by then they've long since moved on to the next pending calamity. Here are the unconventional texture points:

  • Personal income is continuing to rise ahead of inflation such that every generation earns about twice as much per capita as the one before
  • That is, a falling percent of the federal budget should still buy more robotics, rockets, science, human spaceflight, exploration (and settlement?!) even as it buys fewer staffers and is a lower share of GDP
  • Bracket creep, estate tax and alternative minimum tax are going to increase receipts above historical revenues and changes that fix these are likely to fix macro spending issues at the same time
  • The boomers are likely to work part time or full time during retirement years
  • The boomers are more comfortable with the stock market and are likely to earn higher returns there than previous generations of pensioners
  • The boomer echo will put more workers in the worker to retiree ratio again as the boomers die off before the boomer echo generation retires
  • Between Federal, State, County and Local taxes, we are taxed together at above the monopoly rate; if there were a coordinated decrease, revenues would increase for each
  • Private spending on human spaceflight will rise and is already about 0.3% of NASA spending; depending on how you count capital spending by people like Bigelow, it's in the single digit percent
  • First-party State, County and Local spending and incentives for space flight will increase as more states cross the income threshold of the US and USSR economies in the late 1950s which was about 1/8 what it is now for the US. California has already crossed this. Texas and New York will in the next 20 years. If space gets cheaper, Florida may enter the ranks of states that could have their own space programs. Initiative by a vocal minority may rocket this issue into the fore. Oklahoma and New Mexico are more like the USSR in the space race looking at space as a way to look far bigger than their economies suggest and to leap frog other states in an emerging industry. The Soyuz is still flying and is now profitable even as Russia has an economy 1/6 the size of the US (USSR had 1/2 the US economy in 1960) so the space portion of their strategy is validated. And may even work for New Mexico which has about 1/12 the size of the 1960 USSR economy now
  • Boomers dying will likely dry up support for a cargo-cult do-nothing NASA as memories of Apollo die with them; Obama can be seen as a coming attraction of how the next generation will treat NASA
  • Support for ITAR and missile counter proliferation will wane, but existing techniques will ossify as civilian launches start to dwarf military ones as long as there is no space 9/11 which has a mixed effect on cost of flight
  • Competition and achievement from the private sector will put pressure on budgets to achieve more value for the dollar, but at the same time make obtaining that value easier

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Anonymous wrote:

Between Federal, State, County and Local taxes, we are taxed together at above the monopoly rate; if there were a coordinated decrease, revenues would increase for each

What do you mean by monopoly rate?

Big D wrote:

It's the natural price (or in this case, rate) at which a monopoly maximizes its revenue (any higher, and sales drop off faster than the higher price can compensate, any lower and you "leave money on the table"). In short, he's saying that marginal tax rates are suboptimal, and will result in higher overall revenue if lowered (which does have quite a bit of evidence to support it, but I don't think there is any general agreement as to just what the optimal global marginal tax rate is).

Lee Valentine wrote:

Bet on Oklahoma and New Mexico.
Florida is coming on strong.

Habitat Hermit wrote:

Very interesting perspectives Sam, particularly the size comparisons between economies. Gave me something to ponder.

John Kavanagh wrote:

"we are taxed together at above the monopoly rate"

i.e. on the far right of the laffer curve.

Sam Dinkin wrote:

If I'm a contractor, I pay payroll and income taxes on money I earn at the margin $0.38 gross which is 61% of the $0.62 I get to keep. Whatever I buy next, whether it's a house, something at the store, or hire someone to be a household employee, I'm hit with a property, sales, or employer tax. If I keep it, I'm hit with interest or capital gains tax on top of the other tax when I get around to finally spending it. Let's say I buy something at the store and pay 8% sales tax. So I get $0.57 worth of stuff for providing $1.00 worth of work. The $0.43 I'm paying in taxes at the margin is 75% of the $0.57 I'm keeping.

If I got 10% more stuff for every dollar I earned, I might work 20% harder. So there would be more dollars to tax. Assume my average tax rate is the same as my marginal tax rate. I would go from paying 75% to 61% of the value of the stuff I get, I would be getting 1.1*1.2 as much or 32% more stuff. Instead of $0.43 cents of taxes on one dollar of work, they'd get $0.46 of $1.20.

If you think of a tax rate as a price on work, the monopoly price/tax rate is the one that extracts the maximum total tax. If you are giving $0.99 of every dollar earned to the tax man, you won't be too motivated to work. At 1%, the government won't benefit too much from your extra work. I think we're above the monopoly rate because there are many different "toll takers" on the bridge from me working to me getting stuff and I have no reason to think they are not all separately maximizing the money they think they can extract.

Going from above the monopoly tax rate to the monopoly tax rate would also decrease the price of stuff because a big component of stuff is imputed taxes.

Ironically, if there is a country with no division of taxing power, the rates would be lower and the taxes would be higher (assuming they didn't abuse the monopoly to make the place a bad place to live so people left).

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This page contains a single entry by Sam Dinkin published on April 16, 2008 10:27 AM.

"I Don't Recall" was the previous entry in this blog.

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