Readers:
I turn now to addressing reader JC’s questions,
going back a few weeks. JC has more questions and comments and we will get to them all. These first:
1. How big should
government be? That’s a big question,
lol. Depends on what kind of a society
you want to have, or what that society wants.
If it wants things done collectively for a lot of things, while still
having individual freedom and basic capitalism (the situation in Scandinavia,
for example), the expenditures will be a good deal larger. If it wants the society to do little
collectively, expenditures can be a good deal smaller, although I believe total
government expenditures of a modern, complex, democratic-capitalism nation
should be no lower than 30% of GDP or it will find itself failing to meet the
needs a modern society requires. Those expenditures should also probably be no
higher than 60%, or the “sweet spot” will have been exceeded, and overall
productivity will lag. Once you set that
general guideline, then you have to decide how much of that should be national
government, how much state/provincial, and how much local.
2. Do we need more taxes
to support big government? A question that is too narrow and too
assumptive. America’s taxation falls
disproportionally on those in the middle, and, to an extent, in the lower
classes, when one considers all the kinds of taxes (property, sales, payroll,
state, etc., not just income tax).
History is full of failed societies that overburdened those who are the
social foundation and basis of productivity.
America also has a tax code that favors the exploitative over the
productive. Those who make their money
on dividends, interest, and “capital gains,” for example, pay a lower rate than
most working people, and furthermore, get extraordinary tax breaks and
loopholes. For instance, when you as an
average person sell your home, car, or other personal asset, you can’t deduct
the loss. Those who the rules-rigged
system deem “professionals” can not only pay a lower tax rate on any profit
they make, can not only deduct a loss on
the “investments” they sell, but can carry forward that loss to offset it in future
years against income. If it’s a
corporation, the deal is even sweeter, allowing one to amend past year returns
if desired to offset the loss. Toss in
liberal depreciation, depletion, and other rules, and the deals just get
sickeningly sweet. In effect, the US
taxpayer subsidizes any risk or downside of corporations and “investors,” but
most of those taxpayers don’t get those benefits themselves. As an important aside, now the reader can get
a glimpse about why corporations often pay little or no taxes, and why high
income individuals pay a smaller tax rate than what is supposed to be the
smallest tax rate. They certainly, as
Warren Buffet says, often pay a smaller tax rate than the
secretaries/administrative assistants who work for them.
a. Now let’s look at when
America has been most prosperous. It has
NOT been most prosperous when robber barons paid little, and is obviously not
all that prosperous now, when taxation on the highest incomes has been the
sustained lowest in well over 70 years. When has it been most prosperous? When middle and lower classes made livable
wages AND paid tolerable taxes WHILE progressive taxation (as high as 91%)
ensured that capital stayed in productive circulation and the drive for wealth
did not become the number one priority.
Does this mean flat rates can’t work?
Flat rates CAN possibly work, but not until much else is changed around
that rate (those sweet deals I talked about).
b. America’s government is
underfunded and misallocated. That is,
the wealthy have escaped much taxation that they did not escape in the more
prosperous past, AND the government has made expenditure choices that not only
put us in debt and weaken us, but siphon away economic productivity, a negative
synergism with cumulatively bad effects.
For instance, military, defense, security, etc. spending are at
extraordinarily high sustained historical levels, and those things are
generally far less economically productive (and are often counterproductive)
than direct economic—preferably non-governmental—activity. As a related matter, things certainly began
to deteriorate when the unsustainable combination started happening (ever
lowering rates, ever more loopholes, combined with increased government
spending—Defense, Medicare, etc.).
3. What is the size of US
government expenditures and liability? A good question, and one that gets into
accounting. Because we have been
deluding ourselves for a long period of time, what SHOULD be included often
isn’t, and we have an extraordinary amount of things “offline” which affect
both budget and liability. Government
accounting—incredibly—has actually improved in the last few years, and accounts
for more of these previously offline things now. The federal budget is complex, and includes
law-mandated spending and yearly appropriation spending. It is under $4T total, but creeping toward
there. It is under 25% of GDP, but
getting toward there. As for
liabilities, that’s another tricky accounting thing. Probable total liabilities and future
promises, including the national debt, are just shy of $90T. Of course, we need to look at more than just
federal government expenditures and liabilities. If all government liabilities in the country,
as well as private liabilities, obligations, and “promises” that could become
government liabilities were added into the mix, we probably have upwards of
$180T in liabilities, probable liabilities, and potential liabilities, and
maybe as high as $250T or more. That’s
more than 10-18 times GDP. It’s a
colossal problem, one related to our collective delusions and to plutocrats
transferring their risk onto the taxpayers.
4. How can we pay off the
16 trillion dollars in US federal debt in the future? If we had stayed on track in 2001, we’d be well on our
way to paying the debt down by now. We
still have the means to pay the debt, but it’s becoming more and more difficult
by the day. In the simplest terms, first
thing is to 1) correct the economy, 2) then, after the economy is corrected,
stop the deficit spending and start an ever increasing surplus to pay down the
debt, and 3) quit abusing Keynesian economics, and if you’re going to use it,
use it like it was designed (borrow only in a recession or war; pay it back
when those end).
5. Are we close to the troubles of Greece? We are not
close to the troubles of Greece, but remember, Greece’s problems are partially
its own fault and partially the fault of the international system that
whipsawed it. Still, we are not FAR from
the troubles of Greece, although our position as world economic center gives us
some more distance than perhaps is commonly thought. It is not a magical protection though, and
people should remember that. All
credible organizations say we are on an unsustainable path. We must summon the will to address that, and
get on a sustainable path. If you mean,
does what happens in Greece and to Greece affect us, the answer is yes. The interconnection of our globalized world,
and especially global economics, ensures that.
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