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In 2000, some might have argued that we were not growing this trend exponentially (at least from 1975 to 2000). That illusion is now over. There is a clear long-term exponential growth channel and we're right in the middle of it.
This cannot work long-term. All exponential trends eventually fail, some sooner than others. When factoring in 200+ years of American history, this one will definitely fail in the sooner camp. Will it fail in my lifetime? Who knows?
In any event, at some point we will need to start raising taxes and/or start lowering social benefits.
Both solutions will be very painful. The longer we wait, the more pain there will be. Those actually pushing to cut taxes are just whistling past the graveyard. As seen in the following chart, taxes have already been cut!
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This is yet another exponential trend failure. And why? People can't pay payroll taxes if they aren't on a payroll. They can't pay capital gains tax if they don't have any capital gains. They can't pay tax on interest if they aren't earning any interest.
September 27, 2012
Multiple choice Mitt Romney on cutting taxes
Team Romney keeps shaking that Etch-A-Sketch. Mr. Romney’s positions change so fast you get dizzy trying to keep up with the latest shift. Yesterday a Romney spokesman said Mitt might not cut taxes and may have to raise taxes on the rich after all. This is because the math just doesn’t support the impossible promises Mr. Romney is making about his proposals.
I don't think it should take a PhD in Economics to realize the implications of the following chart.
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Upside-down parabolas in zero bound worlds are not known for their long-term sustainability. In my opinion, it is insanity to think that more of the same will somehow magically save us.
Source Data:
St. Louis Fed: Personal Transfer Receipts / Government Receipts
St. Louis Fed: Real Government Receipts per Capita
St. Louis Fed: Government Receipts / Disposable Personal Income
2 comments:
I used to mock Reagan's paid spokesman schtick slagging Medicare back in 1960 (Operation Coffee Cup)
but Houston we have a problem:
http://research.stlouisfed.org/fred2/graph/?g=baC
from that graph the solution is obvious, we just need to transfer 2000's benefit burden to today and things would be in perfect balance.
Medicare receipts are ~$200B. Expenses are $800B.
The 40M baby boomers are aged ~50 to 66 now.
http://research.stlouisfed.org/fred2/graph/?g=baG
shows we need a 17% payroll tax just for medicare/medicaid.
We could cut $400B from defense and raise corporate income taxes $400B, lose the Bush tax cuts and that would balance the primary deficit.
But then we've got to face the SSA shortfall:
http://research.stlouisfed.org/fred2/graph/?g=baI
and thanks to ZIRP SSA is losing $100B/yr on lost interest income:
http://www.ssa.gov/oact/progdata/newIssueRates.html
California pension system, same thing -- $20B in lost yield this past year.
My thesis tells me if we ever try to square this picture, land values are going to take it in the pants, since the only thing that supports land valuation is disposable income.
Troy,
My thesis tells me if we ever try to square this picture, land values are going to take it in the pants, since the only thing that supports land valuation is disposable income.
I have a similar thesis regarding the stock market. Go figure.
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