USA's Future - UK budget cuts of £81bn announced

[Pie Floater]

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Originally Posted by Emeritus Which failure?

Greece for one, any more questions?

[dex]

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Originally Posted by MasterBlaster Dex: Add to your analysis: The Boomers retire en masse more than doubling outlays in SS/medicare $25B+ of debt at 2020 interest rates requires $1B+/year just for interest High levels of debt cause induce countries to throttle back loans to US. Interest rates skyrocket, a crisis in what gets paid ensues. Increased taxation drives down economic performance into a cycle of desperation.

I thought about the interest rates increasing and gov't expenditures and interest on the debt increasing but, the VAT is a response to it.
On another thread a poster mentioned that the USA could be pressured by other countries to get it's debt under control and I'm thinking politicians will press for VAT as result of that pressure.

I don't know what a 20% VAT on a 15T economy will bring in but it should kick the can down the road as it did in Europe.

[MasterBlaster]

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Originally Posted by dex I thought about the interest rates increasing and gov't expenditures and interest on the debt increasing but, the VAT is a response to it. On another thread a poster mentioned that the USA could be pressured by other countries to get it's debt under control and I'm thinking politicians will press for VAT as result of that pressure. I don't know what a 20% VAT on a 15T economy will bring in but it should kick the can down the road as it did in Europe.

DEX:

A VAT may or may not have merit. The type of tax is secondary.

I don't beleive that we can only tax our way out of this problem. Without changes we are looking at another $2T in extra SS/medicare and another $1T in interest.

If you try to extract another $2-3 trillion out of the economy it (the economy) will retract big time. Think higher unemployment, and surprise - lower taxable income hence lower taxes. The vicious downward cycle will demand that benefits be reduced.

It's not as easy as you point out.

[dex]

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Originally Posted by MasterBlaster DEX: A VAT may or may not have merit. The type of tax is secondary. I don't beleive that we can only tax our way out of this problem. Without changes we are looking at another $2T in extra SS/medicare and another $1T in interest. If you try to extract another $2-3 trillion out of the economy it (the economy) will retract big time. Think higher unemployment, and surprise - lower taxable income hence lower taxes. The vicious downward cycle will demand that benefits be reduced. It's not as easy as you point out.

My guess is that it is implemented at a low rate to show the world we are working on the problem and then the rate increases over time so as not to negatively impact the economy. But, as Europe, it doesn't solve the debt problem.


Value added tax - Wikipedia, the free encyclopedia
House Speaker Nancy Pelosi stated in October 2009 that a new, national VAT was "on the table" to help the federal government garner needed revenues.[10] After her speech, the Americans for Tax Reform group urged the public to contact their members of Congress to oppose this potential measure.[11] President Barack Obama was reported to be open to a national VAT.[12] One day later, US Treasury Secretary Tim Geithner stated that President Obama does not support a VAT for the US.[13]
Robert J. Samuelson has estimated that a VAT would need to be about 16 percent because, although an 8 percent VAT would theoretically suffice, there would be huge pressures to exempt groceries, rent and housing, health care, education, and charitable groups.[14

[MasterBlaster]

Dex:

I know what a VAT is...

It's not the type of tax it's the magnitude required. Right now the whole US economy has a GDP of around $14 trillion. The government takes in maybe $4.5 trillion and spends maybe $5.5 trillion.

fast forward to 2020 or just a few years later. The economy still at around $14 trillion (or perhaps a little more) but now we need to take in around 7.5 trillion just to pay for what is promised.

Or to put it another way, we are on course for the government to be spending more that half of the GDP each year on benefits should nothing change.

Or to put it aother way, we as a country don't have the capacity to pay for what is promised. That is true no matter what the tax levels are or what the type of taxes are.

[dex]

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Originally Posted by MasterBlaster Dex: I know what a VAT is... It's not the type of tax it's the magnitude required. Right now the whole US economy has a GDP of around $14 trillion. The government takes in maybe $4.5 trillion and spends maybe $5.5 trillion. fast forward to 2020 or just a few years later. The economy still at around $14 trillion (or perhaps a little more) but now we need to take in around 7.5 trillion just to pay for what is promised. Or to put it another way, we are on course for the government to be spending more that half of the GDP each year on benefits should nothing change. Or to put it aother way, we as a country don't have the capacity to pay for what is promised. That is true no matter what the tax levels are or what the type of taxes are.

You trying to talk me into a fallout shelter?

http://www.cbo.gov/ftpdocs/108xx/doc...rojections.pdf

[MasterBlaster]

dex:

I'm still looking at the CBO projections you linked to.

How do they get away with stating that we only have $8.7 trillion in debt when it's really ~$ 13 trillion ? Is there a differnce between "public" debt and outstanding debt ?

Nonetheless, the trends I referred to are real. The Boomers are all retired by 2030 so maybe it will be closer to then. But one way or another cuts in benefits will happen.

[dex]

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Originally Posted by MasterBlaster dex: I'm still looking at the CBO projections you linked to. How do they get away with stating that we only have $8.7 trillion in debt when it's really ~$ 13 trillion ? Is there a differnce between "public" debt and outstanding debt ? Nonetheless, the trends I referred to are real. The Boomers are all retired by 2030 so maybe it will be closer to then. But one way or another cuts in benefits will happen.

Is it possible they do not count US debt held by other US Gov't agencies?

2030 - I'm estimating I check out by 2040 - it isn't going to be easy.

[HFWR]

The Tea Party will fix all this...

[Bikerdude]

I would like to know how the UK plans to balance their budget with job cuts. Not only do the people who are cut stop paying taxes but they go on unemployment (called "the dole") for what, 2 to 5 years?

[traineeinvestor]

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Originally Posted by Gone4Good But that's the joke . . . people on the verge of collecting SS already spent the money, mostly on themselves! The people who "chose not to fund" the SS "trust fund" are the very same people who think they are entitled to payments from this pile of money that doesn't exist. Here is an example to illustrate . . . Social Security takes $10 from Citizen A in payroll taxes. That $10 goes into the government's general revenue fund. Mr. Nice Politician says "Hey look, we have a $10 surplus! Why don't we spend $5 on current services and $5 on tax cuts for everyone?" Citizen A votes for the Nice Politician and everyone celebrates their good fortune. Mr. Nice Politician uses the $10 in SS "surplus" to fund all the goodies, and gives the SS trust fund an IOU in return. Many years later, it's time for Citizen A to retire, but low and behold, there is nothing in the trust fund to pay for his retirement benefits but IOUs . . . who's to blame? Citizen A who already got $10 in benefits for the taxes he paid, or "Still Too Young to Vote" Citizen B who neither voted for this system, nor got any benefits from it? And if we want to be accurate, Citizen A actually voted for $11 or $12 in tax cuts and services considering the general fund deficit we've been running for several decades now. Given the circumstances, it's kind of hard for Citizen A to argue he has a right to anything other than the clean-up bill.

+1

Given that the choices are:

1. Citizen A who has already taken the money (and more); or

2. Citizen B who has received no benefit (and most likely will have to provide for themselves to a far greater degree than previous generations as well as picking up at least part of the cost of the actions of Citizen A),

the answer seems clear. It is not as though the Citizen As of this world can say that they didn't see this problem coming - the unsustainability of pay as you go financial practices has been debated since at least the early 1980s.

Of course nothing is ever that easy because everyone wants someone else to bear the cost, and the reality is that recipients of transfer payments will have to make do with less (and get it later) and taxpayers will have to pay more.

Put differently, the other way of looking at the choices are:

A. the Greek model - do nothing until things start falling apart

B the French model - take tepid fractional measures which will have only a limited impact

c. the British model - be decisive and take the rather painful measures to get the country's finances back on a sustainable path

The other related issue is how to get the economy growing at a pace which will create jobs. Introducing reduced and simplified regulations will make life a lot easier for small businesses (which account for a very high proportion of new job creation) would be a good first step.

[ERD50]

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Originally Posted by traineeinvestor the answer seems clear. It is not as though the Citizen As of this world can say that they didn't see this problem coming - the unsustainability of pay as you go financial practices has been debated since at least the early 1980s.

Seeing it coming and being able to do something about it are two very different things.

I can vote third party to make a statement. Or I can vote for either of the two major parties, neither of which are doing anything to remedy this. And I can write my Representative and get a patronizing "thank you for your interest while we do whatever we damn well please" form letter style response.

-ERD50

[Pie Floater]

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Originally Posted by ERD50 Seeing it coming and being able to do something about it are two very different things. I can vote third party to make a statement. Or I can vote for either of the two major parties, neither of which are doing anything to remedy this. And I can write my Representative and get a patronizing "thank you for your interest while we do whatever we damn well please" form letter style response. -ERD50

Exactly! All the A, B, C, logic pales in comparison to WTF can a taxpayer do. Politicians are not elected by taxpayers. They are elected by the 47% who pay no Federal tax at all in 2009. The same folks who pay almost no Social Security taxes into the system. The same folks who get most of the tax breaks.

The only solution is to separate the taxes in General Fund, Social Security and Medicare and let each system run it's own budget and set payout rates to match a balanced budget.

Start, NOW.

[traineeinvestor]

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Originally Posted by ERD50 Seeing it coming and being able to do something about it are two very different things. I can vote third party to make a statement. Or I can vote for either of the two major parties, neither of which are doing anything to remedy this. And I can write my Representative and get a patronizing "thank you for your interest while we do whatever we damn well please" form letter style response. -ERD50

Politically, this is very true, although if taken to its logical conclusion would suggest that there is no point in anybody exercising the right to vote.

Practically, I respectfully disagree. Citizen A should have protected themselves from the foreseeable unsustainability by saving more. Of course, what actually happened was that savings rates in developed economies declined over this time period.

Personally, I haven't bothered voting in years, but I have kept up a respectable savings rate almost all my working life because only the terminally optimistic and the seriously deluded would rely on something so obviously unsustainable I do not believe that it is prudent to rely on either unfunded state pension plans in an aging society or underfunded private sector retirement schemes in a competitive global economy for my (early) retirement needs.

[ziggy29]

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Originally Posted by Pie Floater Exactly! All the A, B, C, logic pales in comparison to WTF can a taxpayer do. Politicians are not elected by taxpayers. They are elected by the 47% who pay no Federal tax at all in 2009.

I didn't know the right to vote was determined by whether you paid any federal income tax.

And if the 47% alone could determine the outcome of the election, it would also be the fault of the other 53% for not voting in large enough numbers to offset them, yes?

[traineeinvestor]

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Originally Posted by Pie Floater Exactly! All the A, B, C, logic pales in comparison to WTF can a taxpayer do. Politicians are not elected by taxpayers. They are elected by the 47% who pay no Federal tax at all in 2009. The same folks who pay almost no Social Security taxes into the system. The same folks who get most of the tax breaks. The only solution is to separate the taxes in General Fund, Social Security and Medicare and let each system run it's own budget and set payout rates to match a balanced budget. Start, NOW.

HL Hunt suggested that the right to vote should be linked to the payment of taxes. For some reason I can't quite put my finger on he was dismissed as a crank. If politicians and the electorate are collectively so incapable of living within their means, maybe it is time for a different system.

[ziggy29]

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Originally Posted by traineeinvestor HL Hunt suggested that the right to vote should be linked to the payment of taxes.

The problem here is that some people "lock in" to federal income taxes as an absolute proxy for whether or not someone is a "taxpayer."

What about Social Security taxes, Medicare taxes, any embedded federal excise taxes on the goods we buy (i.e. federal gas tax)? Not to mention sales taxes and property taxes at the state and local level.

[Pie Floater]

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Originally Posted by ziggy29 I didn't know the right to vote was determined by whether you paid any federal income tax. And if the 47% alone could determine the outcome of the election, it would also be the fault of the other 53% for not voting in large enough numbers to offset them, yes?

I clearly didn't say that only the 47% were allowed to vote so let's get that cleared up.

And exactly, the 53% need to learn that there is a big stake in voting even when you feel there is no hope because only a 3rd party candidate would propose rocking the entitlements boat.

[ERD50]

RE: (paraphrasing my quote) inability to change anything by vote...

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Originally Posted by traineeinvestor Politically, this is very true, although if taken to its logical conclusion would suggest that there is no point in anybody exercising the right to vote.

If neither choice offers a solution, there really isn't much point. I think a lot of people do it for "bragging rights" - "I voted!".

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Practically, I respectfully disagree. Citizen A should have protected themselves from the foreseeable unsustainability by saving more. Of course, what actually happened was that savings rates in developed economies declined over this time period.

OK, that's different. I personally did take action here, with LBYM, trying to hang on for retiree benefits once I was in striking range, etc. I can't change others behaviors though. If that is what the majority did, well, those are the ones the politicians are pandering to, so it all fits a nice, neat circle. And some of us are outside that circle.

-ERD50

[traineeinvestor]

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Originally Posted by ziggy29 The problem here is that some people "lock in" to federal income taxes as an absolute proxy for whether or not someone is a "taxpayer." What about Social Security taxes, Medicare taxes, any embedded federal excise taxes on the goods we buy (i.e. federal gas tax)? Not to mention sales taxes and property taxes at the state and local level.

Agree - I was not seriously suggesting that HL Hunt's proposal be adopted. However, in the spirit of taking the argument to its illogical conclusion this may provide an explanation for how we got into this mess:

1. by any reasonable analysis, one vote will make no difference to the election outcome so there is no benefit in voting;

2. there is a cost to voting, the act of registering to vote, making the journey to the poling station and the mental anguish of forcing yourself to chose which illustrious candidate will get your worthless vote;

3. given that the benefit is zero and that there is a very real cost associated with voting, no intelligent, sensible or reasonable person would ever bother to vote;

4. it follows from 3, that only the unintelligent, insensible and unreasonable ever bother to vote and the candidates will base their election platforms on appealing to those sections of the electorate.

The more I think about it, the happier I am not to live in a full democracy.