26 April 2011

Revenue creation and Social Security.

FreedomYankee brought up an alternate viewpoint to my view that Social Security needs to go.  Since it would not be rigorous to just state my viewpoint and ignore others (especially when they are well articulated and polite) I will do my best to respond in an equally polite manner.

Your suggestion in "ditching" the S.S system to deal with our current monetary crisis is analogous to dealing with Cancer by offering pain pills rather than surgical removal.
This Junkie (.gov) needs an intervention, not another fix.
This country needs revenue generation, AKA Jobs, which provides, Social security funding, the stability which employment brings, non governmental inspired health care plans through am employer and funds needed to keep a nation from crumbling.

Hauser's Law says that no matter the income tax rate Federal Tax Revenue will hover right at 19% of GDP.  This means that even as the upper income brackets pay more (and lower income brackets pay less to nothing at all) the total revenue taken in essentially remains the same.  So the idea that "tax cuts for the rich" only benefit the rich is simply a soundbite.  When everyone gets a tax break it doesn't affect revenue.  When you raise taxes it doesn't raise revenue (and if you are like California it drives off your highest income earners).

So FreedomYankee's idea is that by creating MORE jobs there will be MORE TAX REVENUE from a larger TAX BASE.  This is a good idea, unfortunately it won't work as the numbers are just too large.

Assuming that Hauser's Law will not be violated, how much of an increase would we need in terms of GDP to make up the 1 Trillion dollar deficit for this last year?  (19% of our GDP was 2.5 trillion which gives a GDP of around 13.5 trillion give or take (which is also the current debt of the US, when countries owe more than their GDP historically they go bankrupt).  So in order to create another 1 Trillion dollars we have to grow the GDP 0.19X = 1 Trillion (X equals 5.26 Trillion).  That means (1/0.19= 5.26) we would have to grow, (5.26/13.5) 39% overnight.  Note, official numbers for our GDP just over 14.6 Trillion, but since GDP is largely an imaginary number used solely to describe the volume of an economy it doesn't really matter as long as the change in GDP reflects either a growth or shrinkage of that economy.

Since economies do not grow 39% overnight, REVENUE GENERATION is NOT an option.

Do you really believe the same government that caused this problem will take all the new found revenue, at your suggestion and use it wisely ?

Hell no.  I expect this nation to crumble like Rome.  At best we would simply fade into insignificance with the grace and dignity of (former) Great Britain.

Look the math simply doesn't add up.  Our GDP has risen no matter how many "Free Trade" agreements gave manufacturing an option out of the Union monopoly on manufacturing.  So NAFTA hasn't killed revenue for the .gov.  We have never had a REVENUE problem, it is only a SPENDING problem. 

To cut spending rather than a plan to return this to a robust economy is to admit this country is defeated, to beg for crumbs rather than acquire the bakery.
A wealhty ecomomy is a healthy economy, period.

I completely agree.  Like Rome we won't be conquered from without until we have looted the public treasury on a Welfare State, intentionally devalued our currency, and become involved in large scale frontier wars far from the center of our nation. History may not repeat itself but it rhymes.

In terms of numbers we have a wealthy economy.  Number one in the world.  About three times larger than the next biggest GDP by country.  It takes the Eurozone combining the economy of the rest of the Western Free World to even compare to the US.  And 19% (Hauser's Law will not be denied) of the largest economy in the world is by no means a small budget, technically it is the largest government budget in the world.  And our nation can't manage to not spend more than the largest tax revenue in the world.

My point is that we have to cut spending.  We simply can't grow the economy out of this mess (the Stimulus Bill tried exactly that, and simply saddled us with more debt with nothing to show for it).  We can't continue to "spend ourselves to prosperity" because our credit rating is already being downgraded (a long overdue move in my opinion).

Rome fell.  The worlds sole superpower fell.  Right now the US is the legacy superpower from the WWII era.  And we will fall.  The numbers don't lie.  The question is whether the fall is hard and brutal like Zimbabwe or if it will be faced head on with austerity like our brothers across the pond.


Graybeard said...

Well done, AM.

Your commenter is making a couple of mistakes that you'll see everywhere. In no particular order, equating tax rates with tax revenues. Tax rates go all over, while revenues obey Halser's law and stay near 19% of GDP.

The second is not appreciating the scale of the problem. A few minutes with a calculator really should be all it takes, but it really isn't just business as usual and the typical elephants vs. donkeys nonsense. This is an existential threat to the republic. Larry Correia (of Monster Hunter fame) wrote a pretty good piece for tax day.

On tax rates vs. revenues, most people aren't aware that the percentage of the top tax burden paid by the "richest 1%" has been increasing for at least 30 years, and that W Bush raised it to its highest level ever. Meanwhile the largest number of people ever doesn't have any "skin in the game".

But if revenues are always about the same percentage of GDP, why not just raise taxes on the rich to punitive levels? The GDP doesn't grow as quickly. Fewer opportunities for everyone. It's the same reason the company I work for announced it's closing operations in California. Why stay somewhere that keeps trying to work you over for cash?

Ted Amadeus said...

It will make for another SUCKtacular blamestorming episode of DonkEphant political theatre and nothing will change: The Washington Corruptocracy is worse than set in its ways: THEY ARE OWNED BY THE BANKHAZARS, and will do anything to keep them happy and lending - even if it means ass-raping you and me. Always remember that "All animals are equal, but some are more equal than others", pretenses to the contrary notwithstanding.

FreedomYankee said...

I understand the statistical points being made, and agree, my "POV" tends to side with "the little guy" who has now been relegated to the fact that a S.S check is all that will be available to them, since the former greatness of their 401k,s, IRA,s etc have now been decimated.
I think we are looking at the same target, just at different angles.

I might have been somewhat cryptic as to my motives since my leanings in the post were geared to more "revenue generation" for "Joe Average's" wallet and the prosperity that brings, inclusive of the need not to "feed at the government trough".

To propose the removal of S.S. always considered a "third rail" in political terms, would have been a much easier sell 25 years ago, when the American worker had more of the stability and perks that went with the economy at that time.

IMO, no amount of money generated or saved will alleviate us out of the current systemic problem we face.
Increased taxing for revenue is onerous and saving thru cuts in services is a moot point.

One point made on a radio program was that it would take "100 million dollars a day for 400 years" to pay the current debt off, just about says it all.

At this point, one's time would be better served on getting their "ducks in a row".. w/ some of the fine information postings, here and at related links. JMHO again.

"Well, Peter, this is what comes of empire-building"

Breaker Morant (1979)

Good luck, Be well.