Congress: Do Nothing, and the Budget Is Fixed

Here's the bad news: The federal budget deficit is gaping wide, and Congress can't get anything done to fix it.

The good news: Not getting anything done is one of the surest ways to fix it.

On Tuesday, the Congressional Budget Office released a 10-year budget forecast that makes one thing clear. If Congress does nothing -- literally, nothing -- and lets all laws play out as they're currently written in the books, the budget deficit over the next decade virtually disappears.

But that would mean allowing three things to happen:

  • An expiration of the 2001/2003 tax cuts, currently scheduled to end in 2013.
  • A massive cut in Medicare payments to doctors, in place since 1997, but currently avoided through temporary patches (the so-called "doc-fix").
  • The $1.2 trillion in automatic spending cuts mandated by last summer's debt ceiling deal must actually occur.

That scenario, the do-nothing plan CBO calls "baseline," shrinks the budget deficit substantially.

A more realistic scenario it calls the "alternative" assumes the tax cuts will be extended, doc-fix will continue to be patched up, and Congress' own self-imposed "mandatory" spending cuts will be ignored.

The difference between the two scenarios is night and day:

Source: CBO.

This chart speaks volumes about our current deficit. The biggest budget risks are not the policies currently in place. It's the popular policies set to expire but likely to be extended -- low taxes and generous entitlements -- that pose all the danger over the coming decade.

Since 1950, the federal government has spent an average of 20% of gross domestic product, and pulled in taxes equal to 18% of GDP. In 2011, both sides of that equation lurched: spending came in at 25% of GDP and taxes were a record-low 14.4% of GDP.

Under CBO's baseline scenario, taxes from 2013-2022 would average 20.4% of GDP, and spending about 22% of GDP. The average annual deficit under this scenario -- 1.5% of GDP -- is perfectly manageable, and since it's likely lower than the rate of inflation, debt as a percentage of GDP would decline.

Under the more realistic alternative scenario, spending would equal 23.4% of GDP over the next decade, and taxes 17.9%. That annual deficit -- 5.5% -- would cause debt as a percentage of GDP to rise from 73% today to 94% in 2022.

So here we have two scenarios.                                                                                     

One could solve the budget problem without Congress having to lift a finger, but would raise taxes on nearly everyone (unpopular) and cut Medicare so savagely that many doctors would stop accepting it (unreasonable). Realistically, this scenario has no chance of occurring. Both President Barack Obama and any potential Republican presidential candidates have vowed to extend the 2001/2003 tax cuts, at least for those making under $250,000 a year.

The other scenario is likely to happen because it gives voters what they want, but keeps the trajectory of national debt on a dangerous path. As the CBO warns, the alternative scenario "will increase federal debt to unsupportable levels." That's putting it lightly.

These are important distinctions to keep in mind. There's often a notion that our budget deficit is high because Congress can't agree on ways to shrink it. But that's not quite right. Both Congress and the president seem to agree on a couple of things: taxes for most Americans should remain fairly low and entitlement benefits should remain sacred.

Yet that agreement can -- and will -- singlehandedly keep the deficit gaping. As David Leonhardt of The New York Times put it: "As countries become richer, their citizens tend to want more public services, be it a strong military or a decent safety net in retirement. This country is no exception. Yet our political culture is an exception. It has made most tax increases, even to pay for benefits people want, unthinkable."

Doing nothing has never looked so attractive.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On February 01, 2012, at 4:42 PM, HighVoltage627 wrote:

    Once again, you write an aritcle that leaves my mouth hanging agape.

    I've been railing for years at the gridlock in congess keeping anything from getting done. As it turns out, we need more gridlock.

    Your ability to turn long held perceptions on their ear is peerless. I'd give you +10 recs for this one if I could.

  • Report this Comment On February 01, 2012, at 5:29 PM, xetn wrote:

    I won't hold my breath for this to happen. Congress may "do nothing constructive" but they always do something, mostly the wrong things.

    And do not forget the rising chorus for starting a war against Iran. Yeah, that will solve the budget problems. And, they are already talking about sending troops back to Iraq.

  • Report this Comment On February 01, 2012, at 5:40 PM, TMFHousel wrote:

    High voltage, thanks!

  • Report this Comment On February 01, 2012, at 6:05 PM, TheDumbMoney wrote:

    Nice.

    Our deficit "crisis" is best viewed as the endgame in the Republicans' 20+ year "starve the beast" strategy. If they let the Bush tax cuts expire, it has all been for naught.

    Most interesting scenario: Obama loses general election vote and lets the Bush tax cuts expire before Romeny is sworn in.

    Second-most-interesting: Romney gets elected and is forced to raise taxes because Republicans lose their bet and the public turns out to be more interested in a large social safety net than in maintaining tax cuts.

    Most likely: "Alternative Fiscal Scenario". And then some time after 2015 the bond market will force our politicians to make this choice. And the Fed is to some extent preventing the bond market from doing this sooner. Which is why smart Republicans who were historical big Fed boosters, but really (led by new Ron Paul fan Bill Gross) have suddenly turned into mini-Ron Pauls.

    Bawk, bawk, bawk! Playing chicken is fun!

    Meanwhile, China, Inc. rises, while operating on successive, tightly orchestrated and fairly ruthless 5-year plans for economic growth.

    We are awesome.

  • Report this Comment On February 01, 2012, at 6:23 PM, HighVoltage627 wrote:

    @dumberthanafool

    Ive thought about your most interesting scenario. I dont think its really all that far fetched. Obama would have nothing to lose. Even if republicans win seats in the senate, the probably wont get a fillibuster proof majority. I dont even think its possible for them to pick up that many seats. Republicans would wail, and immediatly begin work on cutting taxes, but now they would have to fight their way through democrats, who would extract their pound of flesh.

    I would go so far as to say that your most interesting scenario is the probable scenario if Obama loses.

  • Report this Comment On February 01, 2012, at 7:01 PM, dennyinusa wrote:

    We still need to replace our congress people with citizen legislators. Who will put an end to all the perks legislators get while in office and retirement. Put in term limits. Make rule any elected official wanting to run for another position must resign from current elected position. The ideal public servant should vote for what is best for country and/or people, not what will get them re-elected. Then go back and live with rules and laws they helped create

  • Report this Comment On February 01, 2012, at 7:04 PM, CaptainWidget wrote:

    Bureaucrats only purpose in life is to fabricate busy work to convince those paying their salaries of how important they are. Congress is no exception.

    It's no secret that simply slowing the GROWTH of the federal government would eventually result in a balanced budget. But it won't happen. It never does. If the government shrinks, how would the bureaucrats manage to feed their families on their meager 6 figure salaries and give hand outs to their college buddies crappy alternative energy businesses?

  • Report this Comment On February 01, 2012, at 8:06 PM, Hawmps wrote:

    Nice Morgan... +1 for sure.

  • Report this Comment On February 01, 2012, at 8:37 PM, BMFPitt wrote:

    @dumberthanafool

    "Our deficit "crisis" is best viewed as the endgame in the Republicans' 20+ year 'starve the beast' strategy."

    Does this strategy involve a lot of reverse psychology? Because the Republicans grew the budget like it was Augustus Gloop.

  • Report this Comment On February 01, 2012, at 9:53 PM, kahunacfa wrote:

    Letting the tax cuts expire is very bad US Economic policy. The current iresponsible Chairman of the Federal Reserve needs to be replaced -- he is engineering double-digit inflation rates for 2015 and beyond with his irresponsible low interest rate monetary policy. As the economy continues to recover, albeit slowly, business loan demand will soar - especially from small businesses poorly served by the banking system. Why should banks make sound, but potentially risky small business loans when they can lend risk-free to the Federal Government or collect 12% to 22.5% on credit card balances? The answer, the banks will not lend to qualified small businesses.

    Kahuna, CFA

    Venture Capital

    General Partner

  • Report this Comment On February 01, 2012, at 9:55 PM, maiday2000 wrote:

    If you think that raising taxes that much with the uncertainty of the current government regulatory environment will bring in enough revenue to equal 20.4% (remember the CBO doesn't do dynamic scoring), then you are living in as big of a fantasy land as most Americans who don't understand how big our current deficit and debt truly are.

    The fact is that 5.5 million people have left the workforce in the past three years. You want to raise revenue? Broaden the base by putting people back to work.

  • Report this Comment On February 01, 2012, at 11:16 PM, hiddenflem wrote:

    "generous entitlements" hmmm....

  • Report this Comment On February 02, 2012, at 7:16 AM, JeanDavid wrote:

    As a retiree who relies on medicare and company-provided prescription plan, I really really worry about reducing the payments to doctors. As it is now, I estimate that fully 1/3 of the specialists to which I am referred refuse to accept medicare rates of payment. As a result, I must either forego treatement for some things, or go to doctors recently graduated from the medical training system with little experience and no history to speak of from which to judge their abilities. Doctors are already retiring early from the profession because the costs never cease increasing and their compensation is continually reduced. One of the increasing costs is the expense of hiring an additional member of staff just to deal with insurance companies. Even my dentist who has a small practice has to have a full-time clerk just to deal with the insurance stuff. A single payer system with the authority to negotiate prices with pharmaceutical companies would be one way to reduce medical expenses. It works in other industrialized countries.

  • Report this Comment On February 02, 2012, at 7:21 AM, WeWereWallStreet wrote:

    Don't tell Krugman. You get that angry crank worked up and the 273 Times subscribers left will cancel their Fool accounts. You heard it here first.

    http://www.WeWereWallStreet.com/Krugman-Oscar.html

  • Report this Comment On February 02, 2012, at 9:07 AM, Darwood11 wrote:

    Morgan, great presentation.

    I've read similar scenarios if the Bush era tax cuts expire, but yours provides the best overall assessment I've ever read.

  • Report this Comment On February 02, 2012, at 9:30 AM, NozRydr wrote:

    Is this a serious commentary from a serious financial writer or just trolling for responses?

    This isn't a static situation. Taxpayers can and do get to vote with their behavio. That affects collections.. No matter the rate, collections can't seem to do more than about 19% of GDP.

    Seriously, isn't their an editor at Fool sanity checking these pieces? Someone signing off of pieces like these with a better understanding of the basic realities of taxpayer behavior?

    We're fools -- not idiots. Raise tax rates back and collections go down.

  • Report this Comment On February 02, 2012, at 11:23 AM, DJDynamicNC wrote:

    NozRydr - historical review does not bear out your claims. Tax rates were substantially higher for decades. I don't have the states on collection rates, but I do have the figures on our budget deficit as a percentage of GDP, and from a high point during World War II, it then steadily declined until the Reagan years began a massive expansion of public debt which has continued until today (with a brief decrease during the later Clinton years).

    The correlation between higher taxes and more sustainable budgets is fairly clear, which would seem to indicate that higher taxes do not, in fact, lead to lower collection rates.

    Myth = busted.

  • Report this Comment On February 02, 2012, at 11:44 AM, mdk0611 wrote:

    1. You forgot to include that letting everything go would mean sujecting 30 million more taxpayers to the AMT, as the AMT patch would expire.

    2. Additionally, you have all the tax increases associated with Obamacare kicking in starting in 2013.

    What you don't model in your plan is the impact on the economy if this happens. And I think that in 2014 you'd have an electorate willing to look at entitlements after experiencing 2 years of what would be coming.

  • Report this Comment On February 02, 2012, at 11:47 AM, mdk0611 wrote:

    DJ - What you fail to mention is during those high tax rate years there were vastly more deductions and loopholes readily available. Do you really want to go back to deductible credit card interest and pre-"passive activity" tax shelters (among others)? Unlimited deductible mortgage interest on multiple residences? The list goes on.

  • Report this Comment On February 02, 2012, at 12:10 PM, TMFHousel wrote:

    <<What you don't model in your plan is the impact on the economy if this happens. >>

    That is, in fact, included in the assumptions. It's a drag on GDP growth from roughly 2% a year to 1%.

  • Report this Comment On February 02, 2012, at 12:10 PM, NozRydr wrote:

    DjD,

    You missed it. Myth not busted.

    There's a set point around which people modify their spending, saving, tax planning, tax compliance and earning behaviors.

    Result is tax rates go up; tax rates go down. Yet tax revenue as % of GDP stays within a vary narrow range. Solution is GDP growth.

    The right question is "Which tax rate helps GDP grow the 'most-est'?"

    Letting Bush tax cuts expire will almost certainly hurt GDP growth and impinge on growth in tax revenue.

    The assumed paydown of debt in the article above fails to account for this and is therefore fundamentally flawed in both it's basis and conclusion.

  • Report this Comment On February 02, 2012, at 12:14 PM, TMFHousel wrote:

    <<Letting Bush tax cuts expire will almost certainly hurt GDP growth and impinge on growth in tax revenue.The assumed paydown of debt in the article above fails to account for this and is therefore fundamentally flawed in both it's basis and conclusion.>>

    Again, it *does* account for this.

  • Report this Comment On February 02, 2012, at 12:19 PM, DJDynamicNC wrote:

    "Do you really want to go back to deductible credit card interest and pre-"passive activity" tax shelters (among others)?"

    I have trouble believing that deductible credit card interest was a major impact on tax revenue in the post war years, considering the first revolving debt credit card wasn't even issued until 1958.

    I'm all for simplifying the tax code and removing the loopholes and subisidies, but that is an independent (albeit related) issue from the claim that I made.

  • Report this Comment On February 02, 2012, at 12:24 PM, DJDynamicNC wrote:

    "There's a set point around which people modify their spending, saving, tax planning, tax compliance and earning behaviors. "

    I don't disagree. Where we disagree is where on the scale lies the point at which people modify their behaviour to such an extent that explicit revenue gains are offset by behaviourally indicated revenue losses.

    Again, we have had much higher tax rates coupled with much higher growth rates in the past. The economy is complex, obviously, but correlation - while not necessarily indicative of causation - is nonetheless valuable to our understanding.

    The right question is not "which tax rate helps GDP grow the most-est." That sets the implicit framing by which GDP is the be-all and end-all of a successful society - a point I feel you'd be hesitant to explicitly make.

    The correct question, then, is "at which tax rate will GDP growth remain sufficient for economic stability while still allowing the nation to deliver the level of governance expect and requested by the population at large." That point, I would argue, is somewhat higher than the point at which we now stand.

  • Report this Comment On February 02, 2012, at 12:53 PM, NozRydr wrote:

    Yes we've had higher rates in the past.That's have the situation. What happens in the past when rates were raised? How about in fragile economic times.

    So gotta ask ourselves what happens if we raise rates from here -- today, in this environment. How can growth, therefore collections and therefore deficits not suffer with such action?

  • Report this Comment On February 02, 2012, at 12:54 PM, NozRydr wrote:

    *edit to add: don't underestimate the willingness of folks and business owners to "Go Galt." Esp in the current mood.

  • Report this Comment On February 02, 2012, at 12:55 PM, smartmuffin wrote:

    Of course all of this assumes the CBO estimates are worth the paper they're printed on.

    CBO estimates are virtually never accurate. Didn't they estimate that Obama's stimulus would keep unemployment under 8%?

    Don't they regularly estimate that socialized medical care will reduce the cost to consumers, when that has been time and time again disproven?

  • Report this Comment On February 02, 2012, at 12:59 PM, TMFHousel wrote:

    <<What happens in the past when rates were raised? How about in fragile economic times.>>

    Revenue went up. See: 1990s.

  • Report this Comment On February 02, 2012, at 1:09 PM, DJDynamicNC wrote:

    "*edit to add: don't underestimate the willingness of folks and business owners to "Go Galt." Esp in the current mood."

    Please, please, please, I wish those who constantly threatens to "go Galt" which just up and do so.

    Since those same people are always talking about how evil Europe is, presumably they wouldn't go there.

    I can't imagine they'd wind up in China with it's still largely centralized economy.

    Maybe they'd go to Japan? But the Japanese businesses would crush them.

    Perhaps Mexico. The government has less and less power down there, and the cartels are practicing raw, unfettered capitalism at its finest. Galt away!

    America provides you with an unparalleled business experience in a lot of ways and for a lot of reasons. Taxes are the price you pay for that environment. If you're not willing to shoulder your portion of the burden, that's fair. Go as Galt as you like and get out of our hair.

  • Report this Comment On February 02, 2012, at 1:10 PM, TMFDitty wrote:

    Three cheers for gridlock: Hip, hip ... ["hurray" fillibustered]

  • Report this Comment On February 02, 2012, at 1:11 PM, DJDynamicNC wrote:

    @Smartmuffin: "Don't they regularly estimate that socialized medical care will reduce the cost to consumers, when that has been time and time again disproven?"

    Disproven time and again, except by every real world example.

    I'm curious how an insurance system with no profit margin, no shareholders, no advertising costs, massively larger member pools and vastly lower administrative costs - all of this quantitatively verifiable - somehow costs more than competing private options who suffer from the opposite state of affairs in all of those categories.

  • Report this Comment On February 02, 2012, at 1:16 PM, TheDumbMoney wrote:

    BMFPitt:

    The Republican Party is indeed not monolithic. There are many Big-Government Establishment Republicans who have no problem with a large federal government (so long as it also tells people who they can marrry). The Republican Party has of course sometimes yielded to their impulses.

    But I think the dominant theme of the Republican Party, and this is increasingly so, is to starve the beast. Grover Norquist, and his many devoted pledgees, are literally ***ping on themselves with excitement about the possibility of being able to convert crushing fear of deficits into more permanent reductions in the scope of government. Ironically, they look to Europe for inspiration: there the fiscal crisis is so large, the only option may be austerity, which has meant, and continues to mean, permanent cuts. That is why, as I said, they are exceedingly, exceedingly irritated at the Fed: the Fed has to a certain extent prevented (or at least delayed) the Almightly Bond Market from delivering the coup de grace to the rest of our Evil Welfare State, as Carville's famous 1990's bond market did to America's federal welfare programs.

    All best,

    DTAF

  • Report this Comment On February 02, 2012, at 1:24 PM, NozRydr wrote:

    Some of us (many of us) go Galt by degrees. Based on the tradeoffs we ask and answer lots of questions.

    Do I work overtime or not?

    Do I roll that depreciated rental into another property and pay capital gains or hold it to spite the tax man?

    Do I hold dividend stocks or shift away. Hence the narrow effective range of tax collections -- regardless of tax rate.

    Do I comply faithfully and fully with tax codes or take the cash discount from that auto repair shop, home handyman or building/landscape contractor? yadda, yadda

  • Report this Comment On February 02, 2012, at 1:36 PM, NozRydr wrote:

    Add New Zealand to your list of possibles.

    James Cameron and his millions command eject:

    http://hosted.ap.org/dynamic/stories/A/AS_NEW_ZEALAND_JAMES_...

  • Report this Comment On February 02, 2012, at 3:14 PM, DJDynamicNC wrote:

    Well, I suppose eventually all of the uber-capitalists could indeed go Galt and live in New Zealand or elsewhere, leaving us with a nation full of nothing but workers, cooperatives, entrepereneuers who feel obligated to pay their share of taxes to support the system that makes their businesses possible, and corporations that respond to a public need and pay their fair share in taxes as well (the ones who are not interested in doing so having long since abandoned the American economy, the prospect of billions of dollars in profits not, apparently, being worth having to pay a slightly modified capital gains tax rate).

    Goodness, whatever would we do in that situation? Dystopia for sure.

  • Report this Comment On February 02, 2012, at 3:21 PM, DJDynamicNC wrote:

    Oh, and by the way, if what you're trying to say with your link is that a Canadian millionaire is going to move to New Zealand because he wants to pay 33% personal income tax, on top of a 15% national sales tax, and continue to enjoy socialized health care, then sure, you've made your point, but I'm not sure how that contributes to your argument. It's not exactly "going Galt" to move to a country with the same tax rates as the left behind, and higher taxes than the one you and I were discussing. Care to clear that up?

  • Report this Comment On February 02, 2012, at 6:07 PM, dennyinusa wrote:

    To those threatening to leave USA, get out we don’t need people or corporations that just take and feel no obligation to their fellow citizens and the society that made their success possible. You sound like other fools I know who think they made it on their own without help from others or don’t understand how lucky to have been born in USA or granted citizenship. We have so many things we take for granted. The sooner people like you leave this country the better we will be. You will not be missed. See ya.

  • Report this Comment On February 02, 2012, at 6:27 PM, NozRydr wrote:

    Wow, hit a nerve there, eh? Love or leave it, eh?

    Seriously, this isn't about what obligations anyone feels. This is about understanding how real people respond to real changes in tax law. Ignore it at our peril.

    The point of the James Cameron link is to remind folks that capital and individuals are mobile -- at least until the State controls all of it. Both will respond to system inputs -- perhaps in non-linear fashion.

    .

  • Report this Comment On February 02, 2012, at 6:33 PM, NozRydr wrote:

    On a personal note re: people like me leaving the country. I'd be happy to go off line with you and compare my contribution to this country to yours any day.

    We can start with my DD214 and deployment ribbons and move along to my decades of tax returns, then turn to the contributions of my children in both taxes and military service.

    On the original topic, I prefer clarity to agreement. Seems unlikely we'll get either at this point. Bummer.

  • Report this Comment On February 02, 2012, at 9:37 PM, kyleleeh wrote:

    @NozRydr

    On your original topic of raising taxes causing both decreased tax collection and lower GDP, I got clarity when the author pointed out we had higher GDP growth and got our budget back into black in the 1990s when the government raised taxes.

    As for "going Galt" if the Bush tax cuts expire, why didn't that happen in the 1990s when we had these taxes in place?

    I don't disagree that at a certain point excessive taxes would cause a massive exodus of capital and rampant tax sheltering, but returning to the tax rates of the 1990s does not seem to be anywhere near the level of taxation needed for that to occur. Can you name any time in any country when tax rates equal to the rates we had in the 1990s caused the kind of capital exodus that you're claiming will occur? I really mean that as a question and not an attack...I would really like to know.

  • Report this Comment On February 02, 2012, at 10:18 PM, NozRydr wrote:

    I don't know if that part of the past (the 90's) is sufficiently similiar to the current situation to be prologue. I'm not smart enough.

    I'm concerned that

    a) our economy is significantly more fragile than it was in the 90's when we were enjoying raging growth in productivity and peace dividend and that

    b) this isn't a linear function. We're on the other side of some Taguchi loss function-like curve or Laffer curve where moving to the left doesn't move us up to the peak optimum point but rather takes us sharply off the peak down the negative side. In the 90's my sense from that time was that were on other the other side of the apogee.

  • Report this Comment On February 02, 2012, at 10:38 PM, NozRydr wrote:

    fwiw, a few impressions from ground level economy and mood

    I see a big difference in attitude and approach of the very well off "small time" contractors I interesect with. These are the sorts of guys who are very well off from doing lots of high end work for individual homeowners (pools, addons, remodels, outbuildings, high value,landscape). They've earned it the hard way, put their money on the line, built on spec, been stiffed by subs and owners, poured lots of dough back into their businesses for equipment, paid crazy sums into workmans's comp as a result of scamming employees. etc.

    In the 90's these guys of my age were all working hard to clean up their acts, go legit, come out of the offbooks cash economy, hire legal labor, catch up with the IRS and Franchise Tax Board and so forth. They were almost to a man completely tuned out to politics. In general they were typified by taking on a compliant work with in the system attitude.

    Maybe it's just being in CA but these guys I know are seeing red, they're full on political, looking to build liberty poles, hang tar and feathers at the ready and I suspect some are avoiding taxes by going off books or making sure their books are loaded with losses. Not hard when you're a big pool guy with hundreds of thousands tied up in dump trucks, lowboys, crawlers, tractors and such. I imagine here's all kinds of ways to show a loss in this year vice next or the next.

    I'm not condoning or advocating for any of that. I'm just observing human behavior.

    The point of it is to caution about thinking the 90's .

    cheers,

    Noz

    ...and for the record I'm scrupulously straight with my taxes. (render ot Caesar and all that...)

  • Report this Comment On February 02, 2012, at 10:40 PM, NozRydr wrote:

    acchh *edit:

    "The point of it is to caution about thinking the 90's as a good predictor of what to expect now."

  • Report this Comment On February 02, 2012, at 10:57 PM, kyleleeh wrote:

    The lesson that can also be take from the US in the 90s and from a nation like Germany today is that even if your tax rate is higher then other nations, capital will flow to stability if you can offer it. Both the US then and Germany now have pretty well stabilized budgets which is much more attractive to perspective businesses then a nation on a Greek like debt binge. I think this sort of thing plays a significant role in the low unemployment rates we had then and Germany has now.

    I live in California also and I see what you're talking about, but I don't think it's from the actual tax rates being to high so much as just flat out anger at the government for a list of things I could go on about all night. Some people blame one side some blame the other, some only blame the politicians, some also blame the people they represent. But in their case, the case of our past and present economy, and Germany's economy today, the thing I see, and something that Morgan has mentioned in previous articles is that taxes didn't make "that much" of a difference in the situation.

  • Report this Comment On February 03, 2012, at 11:38 AM, mjmac89 wrote:

    Morgan,

    Your piece highlights two scenarios for the size of the deficit and assumes that the "Do Nothing" scenario is better for the USA with no real explanation as to way.

    I would recommend reading this summary of the situation, which explains why the "Do Nothing" scenario would be bad if not disastrous for the country:

    http://pragcap.com/cbo-budget-deficit-to-drop-markedly-threa...

    I also highly recommend his write up on the realities of the Modern Monetary System, which busts several myths that are being perpetuated by the mainstream media: http://pragcap.com/resources/understanding-modern-monetary-s...

    I'd be curious to hear your thoughts after reading those pieces.

  • Report this Comment On February 03, 2012, at 11:49 AM, DividendsBoom wrote:

    @DJ,

    The insurance system you speak of costs more because of over utilization.

  • Report this Comment On February 03, 2012, at 1:20 PM, NozRydr wrote:

    @Kyle re:

    <<The lesson that can also be take from the US in the 90s and from a nation like Germany today is that even if your tax rate is higher then other nations, capital will flow to stability if you can offer it. >> +1

    @MJM,

    Thanks for those links. Food for thought.

  • Report this Comment On February 03, 2012, at 2:48 PM, DJDynamicNC wrote:

    @Noz - I can agree that the economy is more fragile now than it was in the 90s. We've busted it up done good. Where we disagree is that raising tax rates on the top earners back to where they were in the 90s would damage the economy MORE than the commensurate increases in revenue - not to mention perceptions of fairness, which are important - would aid it.

    As per your second point regarding the Laffer curve, you're free to make that assertion, but I don't see the evidence. I think it's clear that we're at a suboptimal rate. I also think there are incredible unrealized gains to a stable, healthy work force facing full employment through government sponsored programs which could be paid for through increases in the taxation rate (and as unemployed people pay no taxes, this would also broaden the tax base and drastically increase the velocity of money would would additionally enhance revenue streams). Put simply, I'm willing to pay for a more expensive civilization, and I am not alone.

    You're right that James Cameron can move to New Zealand. Warren Buffett can also put his reputation on the line to argue for higher taxes on the wealthy. The plural of anecodate is not data.

    I do believe you about the contracters seeing red in California. I don't move in such high end circles, so let me share some anecdotes from how the other half lives. I see people working day in and day out and putting off needed medical care because they can't afford the time off from work. I see people who have skills that have been made obsolete who can't afford to go to school without government assistance. I see people who got a mortgage but trusted their banker to steer them into the best mortgage possibel and now have been evicted. I see people who invested their money in the market like they were told to do and then watched Wall Street swallow it up. I see talented, energetic people who are working at McDonald's because that's the best they can find, even while we're surrounded by a nation full of work that needs doing. And why? Because we're afraid that some people who make millions of dollars might have to pay 35 cents on the dollar instead of 15? Because we're afraid that some bank somewhere might not get all the money back that it loaned out fraudulantly? Is that really what capitalism is all about (and I'll concede, yes, maybe it is).

    You want to talk about seeing red, we are literally killing people to save a buck, and it's not even saving that much. How does that not make you furious? How much is a human being worth to you? Is a human life really valued at 7 dollars an hour? Is that all we're worth? That's the system we've created, to sell human time for 7 frigging dollars an hour?

    We are better than that.

    "While there is a lower class, I am in it, while there is a criminal element, I am of it, and while there is a soul in prison, I am not free." - Eugene V Debs

  • Report this Comment On February 04, 2012, at 2:00 AM, kyleleeh wrote:

    I think another reason that contractors are so angry in California is because they own businesses that are dependent on people taking out 2nd mortgages and HELOCs to spend on swimming pools and new kitchens at a time when people have very little home equity to spend and have largely lost their taste for debt in general. They're hurting and they're going to keep hurting until people decide to start spending the equity in their homes again. This would make anyone angry, and most people would look for a scapegoat in this situation (immigrants, taxes, the 1% etc).

    But I think it's important not to throw the baby out with the bathwater. Contractors would still be hurting right now whether the tax rate was 5%, 15%, or 50%... high taxes are not what is holding the economy back right now, over-leveraged consumers and governments are.

  • Report this Comment On February 06, 2012, at 3:08 PM, DJDynamicNC wrote:

    @DividendsBoom: I'm curious which unnecessary medical procedures you would choose to undergo if they were free.

    Personally, I only go to the doctor when I need something fixed. Now that I have insurance I am more willing to go early on and to get my annual preventive checkups, which are likely to save money systemically in the long run, but I don't just hop on down to the doctor for the thrills.

    What services and procedures do you think would be overconsumed? Why are they not overconsumed with private insurance, which also operates on a system of premiums and copays?

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