Wednesday, August 11, 2010

IMF: US Tax rates must double.

As we have mentioned several times, tax revenue is wildly insufficient to cover existing and future government costs as long as we are spending half of them to fund imperialistic resource wars (in the name of "fighting terrorism," of course) and continue to give away free security in the form of foreign bases in countries all over the globe. The military industrial complex now takes up half of all the government's income, leaving nothing for social responsibilities - not to mention paying off our sky-high debt levels.

How to solve this problem? 1) raise income, and 2) lower expenses. Duh.

For raising income, only two options exist: sell of US assets, or raise taxes. You'll notice the national parks are not for sale, so that just leaves option 2, as the IMF points out below.

Bloomburg Online
U.S. Is Bankrupt and We Don't Even Know
By Laurence Kotlikoff
Aug 10, 2010 9:00 PM ET

...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.”

...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...

...How can the fiscal gap be so enormous?

Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.

This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck...

...Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills...

...Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on...

So not only will there not be sufficient jobs for able-bodied adults (as the trend, as we have discussed several times lately, is ratcheting down to only one living wage job per household or part-time equivalents), that single income is going to be paying a great deal more in taxes. The burden of this will fall mostly on the poor and middle class, of course, who can't escape.

This means that all US working age people will be paying Europe's 30% minimum tax rate, without getting Europe's national single-payer healthcare systems or any guaranteed basic right to housing or unemployment benefits that Europeans enjoy.

Loads of fun, I'm sure. All the crippling taxes and none of the benefits.

Yes, class, this CAN happen here. In fact, it WILL happen here - as the article points out and we ourselves have discussed many times, this train wreck has nowhere else to go. Even if the wars are stopped and all military personnel brought home TODAY we would still see a steep increase in taxes just to pay off the existing debt. There's no way out.

1 comment:

SJ said...

>> How to solve this problem? 1) raise income, and 2) lower expenses. Duh.

I prefer 3) lower spending. The public sector has to tighten its belt just like the private sector.