MaxedOutMama
Sunday, December 12, 2004
What 2030 means
We're coming off an election year, with all its wild passions and extreme rhetoric, yet we have some nasty issues with which we must deal. They aren't really party-oriented issues, or they shouldn't be. Taking them pound-for-pound, I don't believe Democratic politicians are any less patriotic than their Republican counterparts, or vice-versa. But all Congressional representatives are truly afraid of not being elected, and they tend to need political cover before they stick their necks out on the difficult tasks - the tasks that are very unpleasant and likely to invoke a backlash from the electorate.
I'm surprised that anyone is actually reading my post on Social Security, but it turns out Chrenkoff linked to it! I want to refer anyone interested in the topic also to the VikingPundit's blog, because he is posting quite comprehensively on the subject. But I also wanted to pull in a source from before the Bush era, to show that this question is not a current or sudden development, nor have the basic facts of the situation changed. This is testimony to Congress from 1997 (that's right, the Clinton presidency), and it puts the situation in real terms that the average person can understand:
"The problem of the deficit seems to be shrinking--the fiscal 1996 deficit was only 1.4 percent of the Gross Domestic Product. But the vast majority of the decline in the deficit is the result of cutting national defense, which is now at its lowest level as a percentage of GDP since before the Second World War. [In the last four years federal outlays on physical resources have declined as a percentage of GDP as well.] The human resources category of the budget, which includes retirement and health expenditures, has been virtually constant as a percentage of GDP."
What Annelise Anderson is saying is that the real structural deficit hardly shrunk at all. We could not continue forever this low level of defense spending, and we all know how quickly the peace dividend disappeared - we are now trying to make up for shortchanging our military budget in the 1990's. On top of that, we were shortchanging "physical resources" - infrastructure spending in the 1990's. And the structural problem with Social Security has not changed much:
"Now we have about 3 people working for every retired person; by the year 2030 there will be only about 2 people working for each retired person. And outlays for Social Security (OASDI) and the hospital insurance part of Medicare (HI) will increase from the 1996 level of 6.39 percent of GDP almost of full percentage point by 2010, over two percentage points by 2020, and almost four percentage points by 2030.
"To finance an increase in expenditures through increased taxes, a convenient rule of thumb is that for every increase of a percentage point of GDP in federal spending, tax revenue would have to be raised by an amount equivalent to a 10 percent surcharge on all individual and corporate income taxes. So by the year 2030, we are looking at an amount equal to a surcharge of 40 percent on all income taxes."
The upshot? We can begin to deal with this now, or end up as moribund as Europe is now somewhere around 2020 - 2025. Increasing income taxes that much is simply not possible in a global economy - jobs would leave the US at light speed. We have not been changing the oil in our economic engine, and we'd better start now. One thing that would help us is to adopt extremely pro-growth policies. Ireland is a possible model for that.
If we were to institute a property tax, it would be a huge incentive for those having money to leave the US and move to other countries or to buy property in other countries. Trying that might well end up doing what the Reagan-era luxury tax did - it actually wiped out a few industries by moving them to other countries.
But whatever we do, we must find a way to invest in our own economy and try to stabilize our energy situation. That's nuclear energy, drilling in the Alaska reserves, allowing drilling off the coasts of Florida and California, and seriously taking a look at our tax system while we still have time for incremental growth to reduce the magnitude of our fiscal bomb. We have massive reserves of coal, and we should investigate developing cleaner plants so we can burn our "dirty" coal for electricity, rather than importing ''clean" coal.
The structural deficit in the Social Security/Medicare system and federal pension system is so massive that no amount of increased taxation can fix it. We must seek other alternatives, and cutting imports must be one of those, and cutting energy imports is a great way to start. Another way to look at our situation is that California was ahead of the curve as always. California went bankrupt, and we are on exactly the same road. It's time to slow down, drive carefully, and look for a turn-off. If you are 40 now, in 2035 you will be 70. If you are 30 now, in 2035 you will be 60. If you are 50 now, in 2035 you may well still be with us at age 80, but I doubt you would enjoy paying income tax of 40% on your meager social security check, and you would probably find it difficult to find a paying job.
If you care about the environment now, you should think about how little desperate people are going to care about it when reality hits. There is time now to do things slowly and carefully, but there won't be later. We have time, but not a lot of time to deal with this genuine and unavoidable reality before it becomes an immediate crisis, and the quicker we start the less painful it will be.
I'm surprised that anyone is actually reading my post on Social Security, but it turns out Chrenkoff linked to it! I want to refer anyone interested in the topic also to the VikingPundit's blog, because he is posting quite comprehensively on the subject. But I also wanted to pull in a source from before the Bush era, to show that this question is not a current or sudden development, nor have the basic facts of the situation changed. This is testimony to Congress from 1997 (that's right, the Clinton presidency), and it puts the situation in real terms that the average person can understand:
"The problem of the deficit seems to be shrinking--the fiscal 1996 deficit was only 1.4 percent of the Gross Domestic Product. But the vast majority of the decline in the deficit is the result of cutting national defense, which is now at its lowest level as a percentage of GDP since before the Second World War. [In the last four years federal outlays on physical resources have declined as a percentage of GDP as well.] The human resources category of the budget, which includes retirement and health expenditures, has been virtually constant as a percentage of GDP."
What Annelise Anderson is saying is that the real structural deficit hardly shrunk at all. We could not continue forever this low level of defense spending, and we all know how quickly the peace dividend disappeared - we are now trying to make up for shortchanging our military budget in the 1990's. On top of that, we were shortchanging "physical resources" - infrastructure spending in the 1990's. And the structural problem with Social Security has not changed much:
"Now we have about 3 people working for every retired person; by the year 2030 there will be only about 2 people working for each retired person. And outlays for Social Security (OASDI) and the hospital insurance part of Medicare (HI) will increase from the 1996 level of 6.39 percent of GDP almost of full percentage point by 2010, over two percentage points by 2020, and almost four percentage points by 2030.
"To finance an increase in expenditures through increased taxes, a convenient rule of thumb is that for every increase of a percentage point of GDP in federal spending, tax revenue would have to be raised by an amount equivalent to a 10 percent surcharge on all individual and corporate income taxes. So by the year 2030, we are looking at an amount equal to a surcharge of 40 percent on all income taxes."
The upshot? We can begin to deal with this now, or end up as moribund as Europe is now somewhere around 2020 - 2025. Increasing income taxes that much is simply not possible in a global economy - jobs would leave the US at light speed. We have not been changing the oil in our economic engine, and we'd better start now. One thing that would help us is to adopt extremely pro-growth policies. Ireland is a possible model for that.
If we were to institute a property tax, it would be a huge incentive for those having money to leave the US and move to other countries or to buy property in other countries. Trying that might well end up doing what the Reagan-era luxury tax did - it actually wiped out a few industries by moving them to other countries.
But whatever we do, we must find a way to invest in our own economy and try to stabilize our energy situation. That's nuclear energy, drilling in the Alaska reserves, allowing drilling off the coasts of Florida and California, and seriously taking a look at our tax system while we still have time for incremental growth to reduce the magnitude of our fiscal bomb. We have massive reserves of coal, and we should investigate developing cleaner plants so we can burn our "dirty" coal for electricity, rather than importing ''clean" coal.
The structural deficit in the Social Security/Medicare system and federal pension system is so massive that no amount of increased taxation can fix it. We must seek other alternatives, and cutting imports must be one of those, and cutting energy imports is a great way to start. Another way to look at our situation is that California was ahead of the curve as always. California went bankrupt, and we are on exactly the same road. It's time to slow down, drive carefully, and look for a turn-off. If you are 40 now, in 2035 you will be 70. If you are 30 now, in 2035 you will be 60. If you are 50 now, in 2035 you may well still be with us at age 80, but I doubt you would enjoy paying income tax of 40% on your meager social security check, and you would probably find it difficult to find a paying job.
If you care about the environment now, you should think about how little desperate people are going to care about it when reality hits. There is time now to do things slowly and carefully, but there won't be later. We have time, but not a lot of time to deal with this genuine and unavoidable reality before it becomes an immediate crisis, and the quicker we start the less painful it will be.
