I was reading through the news this morning and came across this piece from Bloomberg. If this is accurate, we are in deeper trouble than I realized. Read the following:
Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.
What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.
Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”
But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”
The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.
Double Our Taxes
To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.
Such a tax hike would leave the U.S. running a surplus equal to 5 percent of GDP this year, rather than a 9 percent deficit. So the IMF is really saying the U.S. needs to run a huge surplus now and for many years to come to pay for the spending that is scheduled. It’s also saying the longer the country waits to make tough fiscal adjustments, the more painful they will be.
Progressives always want to raise taxes. They believe that high taxes on the Little People are good, in and of themselves, so it should be no surprise that the “answer” to all our problems is the raising of taxes. What is troubling is the amount of projected increase. This won’tr bring in the projected revenue because that big an albatross around the neck of the economy will destroy not only economic growth, but existing economic activity. This doesn’;t take a genius in economics to figure out. If you take home a third less money than you are currently making, what happens to your spending? Are you bankrolling a third of your salary right now? Congratulations, the Government wants to take all that money from you. For the rest of us, this is going to cut our economic activity. If this plan were put into effect, we are talking about an instant recession to make the last one look like a real Obama Boom.
Lovely.
I don’t know what the answer is. We are in a deep hole that Obama made infinitely deeper when he pilliaged the treasury upon taking office. I don’t know what we can do about that. But I do know that we can’t double taxes. Raising taxes during a recession is economic suicide as it is. Raising them that much would be like dragging the economy out into the alley and shooting it in the head.
There’s a way to improve the fiscal bottom line. We may have reached the point of no return. Theyre may be nothing that we can do at this stage. I am not an economist. I don’t have any answers. But I can recognize the wrong thing to do, and that is raising taxes. If there is a way out of this hole, it is through growing the economy, and raising taxes will not do that. Quite the opposite, in fact.
