WSJ: Arthur Laffer - Tax Hikes and the 2011 Economic Collapse

[Independent]

Sam,

I put this table together from a few pages in the 2011 budget at FY 2011 President's Budget - Historical Tables

Note that the increase from 2006 to 2014 is driven by three big items: Social Security, Medicare, and Interest.

I'd guess that the Boomers aging into SS & Medicare is driving almost all of the increase in the first two. So, if you want to go back to 2006, you need to reduce per person spending on older people - that is, cut SS and Medicare benefits below 2006 levels.

As you pointed out, interest is a problem. Since it is expected to go up, we need to find additional cuts elsewhere. This is a line item where we can't go back to 2006 levels.
And then, the 2006 budget wasn't balanced anyway, so we would actually need to get below 2006 spending.

(I'm guessing that some of the increases in Individual Income Tax, Medicaid, and Direct Payments to Individuals are driven by the new health bill which increases taxes, increases the number of people who will qualify for Medicaid, and provides subsidies for individuals buying private health insurance. But I haven't chased the numbers to see how significant those items are. I'm also assuming that in this presentation, the net is approximately zero.)

So, with this next level of detail, where would you cut?

Income & Spending	2006	2014	Increase
Individual IT	7.9	8.8	0.9
Corp IT	2.7	2.4	(0.2)
On Budget Social Ins	1.7	1.8	0.0
Social Security	4.6	4.4	(0.2)
Excise	0.6	0.5	(0.1)
Other Receipts	0.7	1.0	0.3
Total Income	18.2	19.0	0.8
National Defense	3.9	3.7	(0.2)
Nondefense:
Social Security	4.1	4.6	0.5
Medicare	2.5	3.4	1.0
Other Direct to Individuals	3.3	4.1	0.8
Medicaid	1.4	1.7	0.4
Other Individuals thru States	0.7	0.7	(0.1)
All other grants	1.2	1.0	(0.2)
Net Interest	1.7	2.8	1.1
All Other	1.7	1.3	(0.4)
Undistributed offsetting receipts	(0.5)	(0.5)	0.0
Total nondefense	16.1	19.2	3.1
Suplus (Deficit)	(1.8)	(3.9)	(2.1)

 

[samclem]

Our "defense" budget has very little to do with protecting our citizens from aggression. We maintain this high level of spending to allow us to engage in these regional conflicts at very short notice.

As you already pointed out, we don't forecast and budget for the actual large military operations themselves. A very small operation can be fought with the existing DoD budget, but any serious commitment requires a supplemental appropriation. The baseline spending level allows us to have the capacity to respond, but not the resources to do the actual fighting (in a big way). That sounds pretty smart to me.

This ain't 1776. It ain't even 1943. Modern war can't wait while we convert industries to wartime production, spend a couple of years training soldiers, sailors, pilots, etc.

Lots of folks have argued for a more isolationist foreign policy, and we've tried it before. But being weaker doesn't decrease the likelihood that we'll need to fight, it emboldens enemies and increases the costs when the fight eventually comes to us.

More to the topic of this thread--defense spending in the US, as a portion of GDP, is near its modern low. It's not the cause of our budget woes. Let's look elsewhere for savings, somewhere with a lower chance of costing a lot of lives.

 

[samclem]

Sam,

I put this table together from a few pages in the 2011 budget at FY 2011 President's Budget - Historical Tables

Hey, cool table. Thanks for that.

Note that the increase from 2006 to 2014 is driven by three big items: Social Security, Medicare, and Interest.

- Are all the figures adjusted for inflation?
- I'm not really comfortable with using the 2014 numbers for someof the same reasons you cite: I don't know what is "baked in" to them. I, too, wonder where all that new government healthcare spending is pigeonholed. And the "green energy" stuff, etc.
Further, I'd bet that many reductions from the shown 2014 numbers wouldn't be actual "cuts", just reductions in projected growth. There's a difference, at least to me.

The answers are probably at your link, and its late where I'm at. I'll dig in tomorrow. Thanks again for the chart.

One parting idea--maybe it's time to budget everything as a % of GDP. When the economy hits a pothole, Granny has to get by with a smaller SS check and Lockheed has to build a couple fewer fighters. Families are tightening their belts, businesses are cutting back, states and municipal governments have to scale back--maybe the federal budget should also rise and fall with the economic tide. If we decide (foolishly) during the next economic downturn to have government spend a larger % of GDP to stimulate the economy, that should be a deliberate decision and not just a a byproduct of inflexible spending plans left over from wealthier days.

 

[Independent]

Hey, cool table. Thanks for that.

- Are all the figures adjusted for inflation?
- I'm not really comfortable with using the 2014 numbers for someof the same reasons you cite: I don't know what is "baked in" to them. I, too, wonder where all that new government healthcare spending is pigeonholed. And the "green energy" stuff, etc.
Further, I'd bet that many reductions from the shown 2014 numbers wouldn't be actual "cuts", just reductions in projected growth. There's a difference, at least to me.

All the numbers are expressed as percents of GDP. There is probably an inflation assumption in the GDP forecast and in the spending forcast, but I'm not sure if that matters when you are doing ratios.

If the spending is a higher percent of GDP in 2014 than in 2006, that may mean there is some new program or truly increased level of funding in that number. For things that are formula driven, like SS benefits, it's just the current formula working on a larger number of people.

Presumably, you'd like to reduce the first category. I think the table shows there are significant increases in the second category.

 

[Gumby]

Our "defense" budget has very little to do with protecting our citizens from aggression. We maintain this high level of spending to allow us to engage in these regional conflicts at very short notice.

It has been my observation that the defense budget is not predominantly driven by such geopolitical considerations at all, but rather by the requirement to care for and feed defense contractors and their political allies.

 

[HFWR]

It has been my observation that the defense budget is not predominantly driven by such geopolitical considerations at all, but rather by the requirement to care for and feed defense contractors and their political allies.

For example, aircraft carrier battle groups...

Fred On Everything

At least according to Fred.

 

[HFWR]

This ain't 1776. It ain't even 1943. Modern war can't wait while we convert industries to wartime production, spend a couple of years training soldiers, sailors, pilots, etc.

Lots of folks have argued for a more isolationist foreign policy, and we've tried it before. But being weaker doesn't decrease the likelihood that we'll need to fight, it emboldens enemies and increases the costs when the fight eventually comes to us.

More to the topic of this thread--defense spending in the US, as a portion of GDP, is near its modern low. It's not the cause of our budget woes. Let's look elsewhere for savings, somewhere with a lower chance of costing a lot of lives.

The founding fathers were wary of a standing army, but modern warfare does not consist of grabbing the musket from over the hearth.

But, much like the overall budget, we (meaning us) need to drill down to the nitty gritty in each of these budget items to find the savings. Fewer ill-conceived military excursions would save quite a bit, and maybe improve our image in the world. But one man's ill-conceived is another's critical mission.

[-]Much of the red tape[/-] Many of the regulations [-]that have grown like kudzu to strangle us[/-] were well-meaning responses to societal problems; i.e environmental and safety, labor laws, etc. Looking at the overall line items doesn't tell us that a lowly regulation from long ago is uesless and wasteful today.

Arguments for/against the constitutional scope of these things notwithstanding, no one - not Ron Paul, not Sarah Palin, and likely not Pres. Obama - is going to wave a magic wand, and magically reduce the size of government, without a long, arduous process, by the very bureaucrats who would lose power and influence, to wade through the brazillion pages of federal regulations, and make the cuts.

So, to make a long story longer, I generally prefer a smaller government and lower taxes, but mostly what I want is for the politicians, and the Merkins who elect them, to decide what's really important, get rid of the rest, then adjust taxes/revenue so that it's paid for...

Good luck with that...

 

[Gone4Good]

More to the topic of this thread--defense spending in the US, as a portion of GDP, is near its modern low. It's not the cause of our budget woes. Let's look elsewhere for savings, somewhere with a lower chance of costing a lot of lives.

And to the root of our fiscal problems . . .

"Deficits are out of control and sending our country toward financial ruin! But do not, I repeat, do not raise taxes! And, while you're at it, keep your hands off my sacred cows . . . find someone elses to gore!"

 

[HsiaoChu]

JUST

3 WORDS: Howard Ruff, 1979.

4 words: Happy Days sells nothin'

or 5 words: DOOM AND GLOOM SELLS COPY.