An interesting tidbit from the back of Section D of today's WSJ. The $900 billion in spending reductions per the recent agreement is predicated on an assumed 3% GDP growth. However, for 2011, it looks likely that our GDP growth will be 2%, or even lower. That 1% gap, multiplied by 10 years results in a $750 billion increase to the deficit per the OMB. That assumes the GDP gap is a one time event. If the GDP reduction of 1% is permanent, then our future deficits will be that much larger.

In other words, the information on lagging economic activity for the 2nd quarter of 2011 has erased the savings from this recent exercise.

Reason #14 to use real numbers and not future expectations. The biggest problem the Tea Party types have with the government is a lack of trust. Accounting like this only perpetuates this lack of trust.

These sorts of things happen in business as well. Budget and projections are always moving targets and very dynamic based on facts on the ground. It's very tough to predict numbers 10 years into the future. When analyzing something as large and dynamic as the US economy, no doubt these predictions will be off. But when politicians and the media scream the headline "we saved $930 billion", it makes sense that people believe them. However, we've just somehow lost $750 billion and no one knows except people who read the last page of Section D of the WSJ, Brad, and me. No wonder we keep saving trillions every year, but our deficits are never tamed.

danivon wrote:I agree with your first point.

Now, if I could just get the President to grasp this.

Perhaps the fact that tax revenues are at a 50 year low is a place to look as well?

Well, Defiant's op-ed is correct, but I thought some factual support might be in order. So, I consulted Krauthammer, er, the Associated Press:

Actually, as a share of the nation's economy, Uncle Sam's take this year will be the lowest since 1950, when the Korean War was just getting under way.

And for the third straight year, American families and businesses will pay less in federal taxes than they did under former President George W. Bush, thanks to a weak economy and a growing number of tax breaks for the wealthy and poor alike.

Income tax payments this year will be nearly 13 percent lower than they were in 2008, the last full year of the Bush presidency. Corporate taxes will be lower by a third, according to projections by the nonpartisan Congressional Budget Office.

The poor economy is largely to blame, with corporate profits down and unemployment up. But so is a tax code that grows each year with new deductions, credits and exemptions. The result is that families making as much as $50,000 can avoid paying federal income taxes, if they have at least two dependent children. Low-income families can actually make a profit from the income tax, and the wealthy can significantly cut their payments.

"The current state of the tax code is simply indefensible," says Sen. Kent Conrad, D-N.D., chairman of the Senate Budget Committee. "It is hemorrhaging revenue."

In the next few years, many can expect to pay more in taxes. Some increases were enacted as part of President Barack Obama's health care overhaul. And many states have raised taxes because — unlike the federal government — they have to balance their budgets each year. State tax receipts are projected to increase in all but seven states this year, according to the National Council of State Legislatures.

But in the third year of Obama's presidency, federal taxes are at historic lows. Tax receipts dropped sharply in 2009 as the economy sank into recession.

Tax increases are coming, thanks to Obamacare. Medical costs will also go up as the mandates pile up (like the recent mandate on birth control, to take effect Jan, 2013).

You can make up to $50K and pay zero Federal Income Tax.

As the article notes, the prime reason for lower tax receipts is the economy. Maybe the President should focus on that instead of "investing" in his pet projects (like green energy and college loans). Those may have long term benefits and they may not, it is arguable. What is inarguable is they will do nothing in the short or near term.

Oh, no, because no business or household would ever look at ways to increase income if it had financial problems, that way lies madness!

Right. How would a household do it? Get a second job? Sell stuff on ebay? Cut corners (more blankets, less heat; more fans, less a/c)? Shop for sales? Eat less expensive food?

What corners has the government cut? The President promised to go through the budget line-by-line. He hasn't. In fact, other than defense, can you name some major cuts he's made (of his own initiative)?

A business would lower overhead. Is the government lowering overhead?

A business could raise prices, but would that work during an economic downturn?

The Democrats just want the easy way out: no seeking efficiency, no cuts, just raise taxes. No thanks.

DEFIANT - You can’t just add up a bunch of tax rates and declare that to be the total. Each tax will be levied on a different thing – some on income, some on assets, some on purchases. Some items are exempt from taxes, some spending is pre-tax (eg pensions), and not all rates apply to your whole income. For example, after payroll taxes you may have (say) 80.5% of your income left. Assuming that you spend all of it all on items that attract Sales Tax, you’d only be paying 4.4% of your income in Sales Tax. But I assume that you do buy food and pay for other items that are not subject to Sales Tax, and that you are the kind of fiscally responsible fellow who does not spend beyond his means, so in reality it is going to be lower. You mention ‘Property Tax’ with a rate of 9%. I thought Property Tax was levied on assets, not income. I can see that Wisconsin has the highest rates in the USA, but they still peak at under 2% at the highest rates http://retirementliving.com/RLpropertytaxrate.html While Wisconsin has the highest Property Tax rate, it also is one of the cheapest states for property. So, if you are saying that your property taxes come to 9% of your income, that means that your tax is levied on property worth about 5 times your gross income. Maybe it is, in which case, that’s not a bad place to be in terms of held assets and for Wisconsin that would make you a pretty rich guy. Kenosha County has the highest Property Tax by income in Wisconsin, at 5%. Again, that’s an average, but 9% looks high and atypical.

Still, let’s take your purported 34% at face value for a moment. In order for the ‘rest’ that you talk about to make it up to 50%, a full 16% of your income would have to be spent on the taxes on them. If every single penny of your income was spent on such goods (again, this means no food etc), then it would mean 24% of that spending would have to be from such taxes. Which seems impossible to me, given that you would have to be buying some food in order to run a household.

The USA Today figures are indeed based on taking an ‘average’, basically tax revenue for the USA divided by GDP (which is the cumulative ‘income’ of the nation). The same process is used by the Tax Foundation to set the ‘Tax Freedom Day’ (TFD) date, and these are people who believe that low rates of tax are good and wish to give as much information about taxes in the USA as they can. They’d hardly be underestimating taxes, would they? If tax burdens were around 50%, they’d be putting Tax Freedom Day in late June or early July. It is actually in Mid-April. The latest it has been was in early May around 11 years ago http://www.taxfoundation.org/taxdata/show/386.html But more detailed breakdowns have been done across income level groups (either by dollar value or by percentile), and tend to show that taxation from all sources comes to around the same level for most people who are on middle to high incomes, and is lower for the poorest.

This has been done at a State level, too, by the way. Wisconsin is in seventh place (so yeah, quite high), and the TFD is still in mid-April. You mentioned a few other states with the apparent assumption that they had massively different tax burdens. Illinois is lower (ninth) and California a little higher (sixth) than Wisconsin, and all three have their TFD on the 15th-16th April. NY is ranked second and the TFD is 24 April. Still some way off of the 50% mark http://www.taxfoundation.org/taxdata/show/387.html

Other studies have been performed on tax as a percentage of income, and some have been quoted by people here, such as the article Archduke Russell John pointed at from the WSJ – there it suggested that the Federal tax burden on the median person was about 15% (and the State tax burden is roughly similar but tends to decrease as you go up in income bands).

In your following post, you mention ‘Ronaldus Magnus’ (I presume that’s some pretentious label for Ronald Reagan). Over Reagan’s presidency, the overall tax take fell slightly as a proportion of GDP (especially after the 1981 ERTA), and the deficit increased. Sure, dollars in tax went up, but inflation, GDP and spending also went up in the same period, rendering the value of the increase null. National debt trebled in dollar terms between 1981 and 1989. Even then, the main way to ‘spread’ of taxation – increases to payroll taxes – was through legislation passed under Carter. When AMT was passed in 1986, it hit the middle classes hardest of all, and continues to be a very large portion of federal taxes. I guess the myths about ‘Ronaldus Magnus’ are more compelling than the facts

Finally, I realise that tax receipts are lowered by high unemployment. This is a symptom of the recession. Guess what the main symptom of a recession is (indeed, the standard definition of one)? Lower GDP. So a recession, especially one this deep, affects both sides of the burden calculation. Also, when it comes to spending, everyone’s bête noir, higher unemployment also causes that to rise. Which means that the deficit is in part so high because of unemployment hitting receipts and increasing outgoings. The key policies to adopt (one would think) would be those that reduce unemployment – while still making employment pay. I think we agree that the way to do this is to encourage economic growth (I understand we are unlikely to agree on the ‘how’, but can we find some common ground here?). At the same time, if that is done, then the effect on the deficit over the next few years should be in the right direction.

Doctor Fate wrote:

Oh, no, because no business or household would ever look at ways to increase income if it had financial problems, that way lies madness!

Right. How would a household do it?

Let's see if you understood what I was saying, hey?

Get a second job?

Yes, this is a way to increase income. Well done!

Sell stuff on ebay?

Yes, this is a way to increase income. Again, well done! It does have the potential drawback of selling assets at a lower price than may be obtained during a boom, but a dollar in the hand is worth 2 in a valuation.

Cut corners (more blankets, less heat; more fans, less a/c)? Shop for sales? Eat less expensive food?

Umm, not these are not ways of increasing income. They are all ways to decrease outgoings. I'm not saying that households don't do that, but I'm saying that they do at least consider ways to bring in more money. You and the Tea Party have essentially called for a veto.

danivon wrote:

Doctor Fate wrote:

Oh, no, because no business or household would ever look at ways to increase income if it had financial problems, that way lies madness!

Right. How would a household do it?

Let's see if you understood what I was saying, hey?

Get a second job?

Yes, this is a way to increase income. Well done!

Sell stuff on ebay?

Yes, this is a way to increase income. Again, well done! It does have the potential drawback of selling assets at a lower price than may be obtained during a boom, but a dollar in the hand is worth 2 in a valuation.

Cut corners (more blankets, less heat; more fans, less a/c)? Shop for sales? Eat less expensive food?

Umm, not these are not ways of increasing income. They are all ways to decrease outgoings.

Yeah, I actually thought, "If I was a household, what would I do?" instead of limiting myself to your "false choice" of income increase only. See, if I don't spend money, it's almost like making more.

I know it's incredible to the liberal mind, but the government doesn't have to spend every penny budgeted. There is no law that demands it.

I'm not saying that households don't do that, but I'm saying that they do at least consider ways to bring in more money. You and the Tea Party have essentially called for a veto.

This is, to be charitable, tripe. Less than 1/5 of the Congress stops the whole process?

Meanwhile, Obama and two years of Democratically controlled Congress raise spending through the roof, then complain because the credit card got maxed out? The only solution is taxes?

Who forced them to spend $800B on a stimulus that "saved" a few jobs for a short period of time? Who forced them to increase discretionary spending?

Were you outraged when the liberals were spending profligately, thus guaranteeing a Tea Party victory last November?

Did you see Rand Paul on CNN? Some idiot kept interrupting, but essentially, Paul said he would have voted for Reid's plan IF it contained a plan to balance the budget over the next 7 to 8 years.

Now, most Americans would see that as reasonable. A balanced budget amendment is common sense, but it horrifies liberals. How will they keep the huddled masses voting for them if they cannot dole out the cash?

I often disagree with RedState blogger, Erickson, but this is right on the money. Feel free to disprove the facts herein--if you can:

Here’s something no one wants to talk about, whether Republican or Democrat. Well, I should not say no one, but pretty much every Republican and Democrat who participated in the terms of the debate over the debt ceiling has ignored this.

Government spending is going above 25% of GDP.

Tax revenue, up until the last two years has averaged 18.5% GDP.

Let’s give the Democrats, for the sake of argument, their Clinton tax increases back. The 1998 to 1999 years saw the highest amount of federal revenue come in. But it was only in the 21% of GDP range.

In fact, 1945 and 1999 are the only two years I can find where tax revenue into the federal government surpassed 20%.

In other words, with the economy firing on all cylinders, only twice has revenue into the federal treasury been over 20% of GDP and spending has now gone well above 20% of GDP.

Today the Senate will vote on the compromise debt ceiling plan. If the plan is implemented to the letter as intended, we will add $12 trillion in debt over the next decade.

Democrats are convinced that they can keep squeezing blood from turnips and get more tax revenue. They can’t. History shows us that. Wealth flight will happen or people will find it cost effective to shelter income.

So if tax revenue, in the very case, is going to max out around 20%, it seems even were the Republicans to concede tax increases, the Democrats are going to have to concede massive spending cuts — much more massive in terms of GDP than tax increases.

They’ll obfuscate. They’ll distract. But history will not be denied.

This is why conservatives must keep pushing for more and more. Both the GOP and the Democrats are in denial about the very real issue — government spending is exceeding its ability to take in revenue to fund the leviathan and at some point the leviathan will come crashing down on us, if we are not first consumed by it.

Democrats like to pretend there is no problem we can't tax and spend our way out of. But, there are limits--and they are historically set.

Danivon,
Here is how I see it using your terms. Tax rate, you say mid april, lets just use through april, 4/12 = 33%, not including property? or sales taxes and everything else we have to pay taxes on like I mentioned, cell, cable, WPS(wisconsin public service)--energy, gasoline, you seem to want to forget those taxes and they do add up. They then have to be added to the total taxes paid out by an individual. You have be able to see that. Now you may be able to argue that ok, maybe you have too big of a home for your income thus the higher % to your property taxes to income. I don't have one of those it is a basic A-Frame ranch, total of 3000 sq ft, upstairs and finished downstairs. I am just a normal resident in mid-wisconsin.

The rates I am giving you is what I paid, I get a gross annual salary and then so much is taken out, for specified tax purposes, I am not talking about FLEX, 401k or such plans just pure taxes and according to my accountant this is what I pay. Also, I have very little deductions I can utilize or take advantage of. My accountant kiddingly said if I want to pay less taxes I need to have another kid or buy a bigger house, I am pretty much at the base.

Unemployment difference between taxing more to current taxpayers or broadening the base, you know the difference. Ronaldus Magnus, the best of our recent presients, yes, Ronald Reagan.
I am going to give you a link to read and I hope you do from the Cato Institute, hard to argue those guys and their resources.

http://www.cato.org/pubs/pas/pa261.pdf

I think this is proof positive that the Keynesian economics does not work. Lowering taxes is the way. Shrinking gov't. The complaint I have with Reagan is he did not shrink gov't and the democratic congress is also responsible just like we did now with the Democrats promising for cuts in spending over 10 years that we will never see. The 112 Congress is not beholding to what the 111 Congress did. They have NEVER cut spending, the have reduced the percentage increase in spending but have not reduced spending. This what has to happen now, we have to address the big 3 entitlement programs.

Reaganomics disproves Keynesian theory that governments should engage in deficit spending to replace the loss of demand in the economy in a recession? I don't think so--in fact, he engaged in a massive increase in military spending which helped to spur the economy. I am sure the tax cuts did not hurt, but neither Bush II nor Reagan just had tax cuts--they also increased government spending. (By the way, that is how we got out of the depression was through massive spending in WWII)

Clearly, when you have tax cuts and increases in government spending you are doing about as much as government can to spur the economy. Bush II (or more accurately the Fed) also lent money at almost zero interest rates, so that was another spur to the economy. The problem that in order to do so you are living beyond your means and eventually you have to pay for it.

The problems we have are solvable but not when Tea Party types have this religion about no new taxes. If spending is at 24% of GDP and tax revenues are at 16% (as I thought or 18% according to that article) how about getting spending down to 20% of GDP at some point? That is what reasonable people do, they come up with a compromise---they don't insist on getting their way as if no new taxes were commanded by God.

Our bad economy is bad, bad shape right now. It has nothing to do with Obama's policies. The fact of the matter is that we have exhausted the stimulus that we were giving to the economy since Reagan came into office. We seemingly thought we could increasing government spending, cut taxes, and have the Feds provide cheap money for the economy. Well, we are at the end of the road on that. I think that having our corporations have as their mantra that the way to make money is to cut employee costs, move your jobs overseas, and then sell back to the U.S. is probably at the core of our problems. You might disagree but there is something structural going wrong with our economy that has nothing to do with tax policy or government spending. If that is true, then we have to fix that if we want economic growth long-term, regardless of what we with regard to taxation or government spending.

We have kept priming the economy under Obama and it is still anemic. The Tea Party types want cuts that would almost certainly plunge our economy into a deeper recession that it is in right now. And we may have to do that at some point. Let's not pretend that deep budget cuts are going to help us in the short-term--they won't. They are going to make things a lot worse. We may need to do it to save the long-term, but we have to be prepared for extreme economic pain in the short-term.

And we need an economic plan to get us back on track. That means getting U.S companies to make good in the U.S. so they will employ U.S. employers. U.S. corporations have been making huge profits in the recession, but mostly by cutting labor costs. We need to get these jobs back home. Otherwise, what are American workers going to do? Work at Starbucks?Wal-mart? Best Buy?

As for entitlement programs, reasonable people can fix these things. Social security? Clearly, there needs to be some tinkering with age requirements; maybe we will have to increase social security tax, and provides allow some means tests for getting it. Medicare is more difficult but I suspect that eventually we will socialize it like other countries--how else are we going to control costs? We just need to say this is what we have to spend on health care each year, the government will reimburse providers for that total amount, and that's it (with increases tied to the rate of inflation). There will probably be a cash underground economy but that's fine--people with money might get better, more expedited care--people without get adequate care.

In government you don't get exactly what you want. This mantra of no taxes is an impediment to solving our economic problems when it is obvious that we need to cut spending and increase taxes to close the deficit to a reasonable level.

The only things I would insist on as far as cuts go is that we focus on making sure everyone in America has enough food to eat, shelter and basic health care needs. I don't believe in natural rights, there are no such things, but we are in the same society and I think it is immoral to make economic decisions that give more money to millionaires and billionaires when someone else is hungry, or is homeless, or can't get health care. I am all for education, infrastructure and other problems but at the end of the day we can cut those if need be. But, in my opinion, in getting through these tough economic times the focus needs to be on meeting basic needs for people and having a strong enough military (though since we are currently spending more money than the rest of the world combined I suspect there is some fat to be cut there....)

The fact the Tea Party types were willing to prevent our government from paying its bills in order to get what they wanted does not bode well for reasonable solution of our economic problems. though. If Tea Party types would grow up and realize that everyone in the country is just like them on average, not free-loading people bilking the system, then they would grow up and be reasonable about tax policy.

freeman2 wrote:The fact the Tea Party types were willing to prevent our government from paying its bills in order to get what they wanted does not bode well for reasonable solution of our economic problems. though. If Tea Party types would grow up and realize that everyone in the country is just like them on average, not free-loading people bilking the system, then they would grow up and be reasonable about tax policy.

Grow up? That's funny. The big, bad Tea Party voted FOR the compromise bill at a higher rate than Democrats did.

So, are you now, based on the NYT graph, going to say Democrats "were willing to prevent our government from paying its bills in order to get what they wanted?"

Or, are you not going to engage in intellectual honesty?

I don't get the argument--there were no tax increases. I argued that a reasonable solution would include cuts in spending and increases in taxes. Since that is not in the plan, I don't see why liberals should have voted for the plan. No tax increases, no knowledge about where the cuts are going to be, and large cuts in January 2013 if no agreement is reached--nothing in that plan for liberals. The Tea Party got cuts without any tax increases, so I can see why the voted for it at a higher rate than liberals, even if many of them did not like it either. And Republicans would have caved at the end, anyway--Obama caved to appeal to independent voters and centrists in preparation for the 2012 election.

I hadn't really looked to see if Tea Party members voted for the plan in higher numbers than liberals or not. I'll assume it is is true and concede it. But what does it prove? If your point is that Tea Party members are more reasonable about fixing our economic problems than liberals are, well, of course we disagree.

And of course liberals would have voted to raise the debt limit as has been repeatedly done prior to this occasion so why should we cave on this occasion to let the Tea Party get want it wants?

freeman2 wrote:I don't get the argument--there were no tax increases. I argued that a reasonable solution would include cuts in spending and increases in taxes. Since that is not in the plan, I don't see why liberals should have voted for the plan. No tax increases, no knowledge about where the cuts are going to be, and large cuts in January 2013 if no agreement is reached--nothing in that plan for liberals.

Ah, because they didn't get what they wanted, it's okay for them to hold the financial status of the US "hostage."

The Tea Party got cuts without any tax increases, so I can see why the voted for it at a higher rate than liberals, even if many of them did not like it either.

But, they didn't get the one thing they wanted--the BBA.

Furthermore, the "cuts" are ethereal. They may never take place.

And Republicans would have caved at the end, anyway--Obama caved to appeal to independent voters and centrists in preparation for the 2012 election.

So, why didn't the Democrats call the bluff of the Tea Party? After all, no one supports the TP anyway. The President said 80% of Americans want taxes to be raised.

In any event, the TP held nothing hostage.

I hadn't really looked to see if Tea Party members voted for the plan in higher numbers than liberals or not. I'll assume it is is true and concede it.

In my post, I linked the NYT picture. You don't even have to read anything. It's all there in gray-tone.

But what does it prove? If your point is that Tea Party members are more reasonable about fixing our economic problems than liberals are, well, of course we disagree.

You said, ". . . the Tea Party types were willing to prevent our government from paying its bills in order to get what they wanted . . ." and that turned out not to be true. They were more willing than the liberals, so . . . the proof's in the pudding (vote).

Furthermore, the liberal mantra is--spend more.

Where does the money come from? All of the loopholes and tax increases they've proposed would not come close to covering another Stimulus. So, borrow even more? At what point does borrowing become a problem?

If you're a liberal, the answer seems to be "Never."

freeman2 wrote:And of course liberals would have voted to raise the debt limit as has been repeatedly done prior to this occasion so why should we cave on this occasion to let the Tea Party get want it wants?

Again, admitting it was liberals who ". . . were willing to prevent our government from paying its bills in order to get what they wanted . . . "