Posts Tagged ‘debt’

Gary Johnson Reacts To June Job Numbers

Gary Johnson reacts to the June jobs report by issuing a statement via his campaign website:

The anemic jobs numbers for June simply confirm what Americans already know: That employers cannot and will not hire new employees with the federal government continuing to rack up trillions of new debt, a tax system that does all the wrong things, and massive uncertainty about the true costs of impending health care mandates.

Abolish income taxes, repeal the health care mandate, eliminate deficits, and then watch as American entrepreneurs and the private sector put millions back to work.

The time for hand-wringing and nibbling around the edges is past. We don’t need a 10-year plan for balancing the budget; we need a 1-year plan. We don’t need token reductions in income taxes; we need to eliminate them. And we need to elect a President and a Congress who get the simple fact that less government will mean more jobs.

Our complete Gary Johnson archive

Image via Gary Johnson 2012

Federal Revenues Are Historically Unresponsive To Top Marginal Tax Rates

With all eyes on Europe as France and Spain struggle to close their budget deficits while global markets anxiously wait for a final Greek exit to put a hole in the Eurozone, things seem quiet on the fiscal policy front here in the United States, but brewing under the surface is another big fiscal fight over the national debt, yearly budget deficit, and the debt ceiling.

One relevant principle in economics is the observable phenomenon that increasing tax burdens hinder an economy’s outputs. In 1913, passage of the 16th Amendment permanently embedded the income tax into our lives, but the seemingly counter-intuitive inverse relationship between taxation rates and tax revenues ever since is well documented. Regardless of marginal rates, tax revenue as a share of GDP remained static in a narrow range of 18-20%, even in the 1960s when the top marginal tax rate was 90%:

tax rates and revenue as a share of GDP Federal Revenues Historically Unresponsive to Top Marginal Tax Rate

Graph via

These are interesting figures for a nation founded on resistance to unpopular taxes. At the Wall Street Journal, W. Kurt Hauser summarizes: “Tax revenues as a share of GDP have averaged just under 19%, whether tax rates are cut or raised. Better to cut rates and get 19% of a larger pie.” If we eliminate the cable news, split screen, partisan mentality from the equation and focus on the numbers, it becomes apparent that we just can’t tax our way to a balanced budget. Economist Antony Davies explains:

“[T]he richest 5 percent of Americans already pay a tax rate almost three times higher than the average tax rate of the remaining 95 percent. It’s hard to argue that the richest aren’t paying a fair share of taxes. Aside from that, for the richest Americans to shoulder the deficit, we would have to raise their effective tax rate to 88 percent. At 88 percent, a family earning $300,000 each year has only $36,000 after taxes—less than the average American earns.”

“The budget deficit is so large that there simply aren’t enough rich people to tax to raise enough to balance the budget.”

Moreover, even if we could eat the rich, the accumulated windfall tax revenue would still end up in the hands of bureaucratic central planners under the false pretense that a single planner can act as an architect of the economic activity of millions of market actors. In The Theory of Moral Sentiments (1759), the founder of modern economics as we know it, Adam Smith describes this behavior by a “man of system”:

“[Such a man is] apt to be very wise in his own conceit; and is often so enamored with the supposed beauty of his ideal plan of government that he cannot suffer the smallest deviation from any part of it.”

Economist James Otteson explains Smith’s “man of system”:

“The man of system faces a problem: individual people are not chess pieces to be moved only under someone else’s authority. Individuals make their own decisions and move on their own. When individuals are constantly butting up against demands from the government that they find imposing or contrary to their desires, Smith says, ‘society must be at all times in the highest degree of disorder.’”

But again, our history of marginal tax rates and total federal revenue as a percentage of GDP shows that rather than focus on taxes and revenue, getting the fiscal house back in order requires a sober assessment of the bipartisan spending problem. An intellectually honest dialogue about entitlements, a third rail of American politics, must occur at the national level. In their current structure, spending on programs like Medicare and Medicaid will engulf the budget in the next couple of decades. Any expectation of receiving future benefits from these programs requires serious, immediate cuts.

Mathematically, this perpetual runaway spending is simply not sustainable. No level of taxation will be able to keep it going, as the data above show.

Cross-posted from IVN

LearnLiberty on Funding Government by the Minute

Take it away, Antony Davies:

The United States currently pays 3 percent interest on the government debt. Economics professor Antony Davies shows that this year the U.S. government owes $440 billion in interest alone. This is three times the annual operating expenses of the Iraq and Afghanistan wars.

Suppose that on January 1 the government received its revenue of $2.2 trillion and began spending. To spend $3.8 trillion in one year means the government spends at the rate of $434 million an hour, or more than $10 billion a day.

With $2.2 trillion to spend, spending at a rate of $434 million an hour, the federal government runs out of money at 11:59 p.m. on July 31. To eliminate the deficit the government needs to cut five months’ worth of spending. Professor Davies shows that perhaps just cutting programs is not going to be enough to balance the budget.

LearnLiberty on the Dangers of Too Much Debt

Another great video:

The United States currently pays 3 percent interest on the government debt. Economics professor Antony Davies shows that this year the U.S. government owes $440 billion in interest alone. This is three times the annual operating expenses of the Iraq and Afghanistan wars.

Using data, Professor Davies shows that the situation is likely to get worse. Today the interest rate is the lowest it’s been since the 1960s. If the rate rises to 8 percent, which is what it was 20 years ago, interest payments on the debt will be larger than the annual cost of every war the United States has ever waged combined. The more money the government is spending on interest, the less money it has available to provide other services.

So what should be done? The government should take advantage of today’s low interest rate and pay off as much of the principle as possible now, before interest payments rise to unsustainable levels.

Feb 29th House Financial Services Hearing: Ron Paul vs Bernanke

Current Economics

I have a feature column called “Current Economics” in the new quarterly magazine, Middle Tennessee Home & Garden. What does one have to do with the other? Well, the mag is geared towards luxury home owners that have a buck or two in the bank and want to protect their net worth against unsustainable debt and worthless paper money.

My piece is on page 56 and available for free online. More info on the publication can be found here.

Hope you enjoy.

No Need to Fear the Sequester Cuts That May Never Happen

With the Super Committee’s failing, Veronique de Rugy explains why we have nothing to fear from the sequester cuts. Even though the cuts have little effect on the growth of debt, as evidenced by this chart, Ms. de Rugy doubts they’ll even be implemented:

…[H]ere is what makes me particularly grumpy: The American people can’t even count on this tiny debt reduction, because it is unlikely that Congress and the president will let the sequester cuts be implemented — in other words, you can pretty much forget about the red bars. Of course, even the blue bars are rosy projections of our debt levels, since they assume that the spending cuts in the health-care bill will happen and that Congress will let the spending caps in the BCA work, among other optimistic expectations.

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