The U.S. fiscal gap, calculated (by us) using the Congressional Budget Office’s realistic long-term budget forecast — the Alternative Fiscal Scenario — is now $222 trillion. Last year, it was $211 trillion. The $11 trillion difference — this year’s true federal deficit — is 10 times larger than the official deficit and roughly as large as the entire stock of official debt in public hands.
We of course are not really talking about this. Oh we do talk about the $1 trillion+, more or less, that we add to the “official debt”, but nowhere is mentioned the growth in the actual liabilities — if, that is, you accept that things like Medicare are actual obligations.
Hint: They’re not.
When fully retired, 78 million baby boomers will collect, on average, more than 85 percent of per-capita gross domestic product ($40,000 in today’s dollars) in Social Security, Medicare and Medicaid benefits. Each passing year brings these outlays one year closer, which raises their present value.
No they won’t. Not because they won’t try to, but because the working people of the nation won’t pay it. If pressed that hard they will do what all people do when pressed hard enough — they will revolt, violently if necessary. The reason why is obvious and inescapable; nobody submits to being a slave voluntarily and communism doesn’t work as the quality and quantity of work drops as you try to put your boot on the people’s neck.
Ask young people about this — will you give up everything you earn and have so your Dear Old Dad can live in the way to which he is “entitled”, including all the medical care he wants despite being 300lbs and eating like a pig for the last 30 years?
Compassion? Sure, especially for their own parents. But forcible extraction of literally every bit of value in the labor that working people have so that the “old farts” can sit in their ass and collect that to which they’re “entitled”?
Not a prayer in Hell.
That’s a problem.
The answer for the U.S. isn’t pretty. Closing the gap using taxes requires an immediate and permanent 64 percent increase in all federal taxes. Alternatively, the U.S. needs to cut, immediately and permanently, all federal purchases and transfer payments, including Social Security and Medicare benefits, by 40 percent. Or it can mix these terrible fiscal medicines with honey, namely radical fiscal reforms that make the economy much fairer and far stronger. What the government can’t do is pay its bills by spending more and taxing less. America’s children, whose futures are being rapidly destroyed, are smart enough to tell us this.
Actually, if we don’t cut this crap out they’re going to tell us with guns, pitchforks and torches — or simply by refusing to work at all.
This is the problem with confiscatory tax rates — they drive behavior. People say that “very few” people ever paid the 90% tax rates of years past. That’s true. Nobody made that much, on purpose.
You could set the tax rate over $250,000 at 100% if you wanted to. There are two problems with such a move — first, doing so wouldn’t close the deficit (there aren’t enough people who make over $250,000 and enough income to steal doing this to reach budget balance) but more importantly if you did this the next year nobody would make more than $249,999 since they would get to keep none of it!
What would that do to our economy? Good question; a lot of people would spend a lot of time at the beach instead of innovating and creating, I suspect. And while this might be good for the makers of rum and various other libations, I doubt very much the net economic effect would be positive.
As I noted yesterday (and, I might note, forms one of the key items in Leverage, available to the right) there are interconnected items in our national debate that nobody wants to talk about as interconnected items. Yet we have to, because they form the basis of the fiscal challenges we face.
Policy decisions were intentionally taken that, on any objective basis, amount to massive frauds against the public. A tiny minority of people — banksters — have benefited tremendously from these frauds. The expansion of the credit bubble over the last 30 years has made a tiny percentage of the population fabulously “wealthy” but the wealth they obtained was false prosperity in the first instance. It appeared to be “freely earned and/or given” but it was not; it was stolen as the premise under which it was tendered wasknowingly false and the beneficiaries are the ones who constructed the knowingly-false edifice under which they obtained it.
When you get down to brass tacks it all comes down to the reality of two exponential functions. They always run away from one another. It cannot be otherwise; this is a basic principle of arithmetic, and no amount of arm-waving can or ever will change it.
That’s the bottom line right there. Any two growth functions, where one has a larger growth figure than the other, will run away from one another. Growth in debt, irrespective of the name you give it (e.g. “entitlements”, whatever) may never exceed the growth in the economy.
If it does the above happens. It will not happen some of the time, it will not happen only if you get unlucky, it will not happen only on Tuesdays, it will happen each and every time, without fail, and it will screw you each and every time without fail. It must therefore never be allowed to happen.
This is what all fiscal policy debates are ultimately about. It has never and will never be about anything else. It can’t be about anything else, because this is the reality of that fiscal debate, whether people wish to deal with and admit it or not.
We’re still arguing over stupid things, more than 30 years after the alleged debate began.
Until we address and conform our debate to the above simple mathematical relationship no progress will be made, and the longer we wait to do so the higher the odds that an all-on fiscal and economic collapse becomes inevitable.