But Republicans are terrorists (literally, not figuratively). The majority of Congressional Republicans endorsed terrorist attempts to overthrow the US government, and are backing the leader of the terrorist movement as their next presidential candidate. Saying "US governance is shaky" is being generous.
If you really want to increase tax revenue, none of your proposals do much. There simply aren't that many people in the top tax brackets.
If you want a dent in GDP, you're going to have to notice that the median taxpayer is paying <8% income tax (12% marginal, but after the increased standard deduction and 10% initial bracket...). This is SIGNIFICANTLY lower than it was back in the late 90s.
Agree somewhat, but there is a lot of room for low deadweight loss taxation of high income people: a) eliminate business taxes, impute income to owners to be taxed at owner's personal income tax rate. Treat indexed capital gains as ordinary income. [All income is ordinary income] No rebasing of indexed capital gains at inheritance and lower exemption of inheritances. Convert deductions for tax favored consumption (mortgage interest, charitable deductions) to partial tax credits.
And, though not especially progressive, shift from financing SS and Medicare (and any other safety net transfers, UI or CTC) from wage taxation to VAT and Pigou taxation of net CO2 emissions.
But rates on more than just the very top incom earners will have to go up too.
I don't disagree with the macro analysis here but I think Noah is making a seriously confused political argument.
Both parties should want fiscal austerity because both parties want inflation to come down. And since we have divided government, it can't be implemented entirely through spending cuts (as the Republicans would prefer) or entirely through tax increases (as the Democrats might like). There has to be negotiation to reach agreement on some combination of the two.
That has absolutely nothing to do with the House GOP's threat of debt default, which shouldn't be entertained under any circumstances. Biden needs to move ahead with minting the platinum coin, and if there's any doubt about the legality of that approach he'll need to invoke the Fourteenth Amendment as a backup.
This isn't an alternative to sensible bipartisan negotiation; it's the °prerequisite° for sensible negotiation.
Honestly, I think threatening all that extreme stuff just makes the U.S. look even more like a banana republic. Do it if you have to, but don't feed the brinksmanship.
A country where one party attempts to stage a coup when it loses *is* a banana republic, at least as long as that party is treated as a legitimate actor. Playing hardball on fiscal policy isn't brinkmanship, embracing traitors (again, literally, not figuratively) is.
Your basic problem is Trumpism/populism being able to seize such a commanding height in Congress. Kevin McCarthy had to cave to the nutters to get his leadership position. Who knows what these people are willing to do? They do seem worse than the tea party nutters of the Obama years... To think we'd miss those as*holes...
It's too much to hope for the GOP to become a normal party again anytime soon but one thing you shouldn't do is pretend they are a normal, potentially capable of governing party. I've never liked them but they are not anymore and that's different very different from even 10 years ago...
By "extreme stuff" do you mean minting the coin, or arguing that it's unconstitutional to appropriate money and then not commit to paying it out?
The Fourteenth Amendment approach doesn't strike me as extreme at all. No other major country has a statutory debt ceiling, just because passing a budget and not paying for it would be "banana republic" behavior. The platinum coin and high-interest bond approaches do look a little goofy but given the current makeup of the Supreme Court, I think a minimum of two strategies would be prudent.
Surely the US would be taken more seriously, not less, if these crises stopped happening?
The platinum coin *sounds* goofy, but it's not really. It's just a way for the Treasury to print electronic money (by having the Fed do it when they accept the platinum coin deposits.) That's a totally normal ability in this age. It's actually totally messed up that private banks can print electronic money almost without limits, while the government, which is ultimately responsible for the effects of that money, can't print a penny.
Cutting spending has pros and cons from the GOP's point of view. It shrinks the government but it also causes inflation to fall while Biden is running for reelection.
Raising taxes is bad for rich people and it also helps Biden politically via lower inflation. That's why I have trouble understanding why Noah even considers it in the possibility space.
Yeah, Republican's primary goals are as follows: (1) Ensuring Biden doesn't win re-election. As long as inflation remains persistent, this only helps their chances at winning the 2024 election. (2) Keeping taxes low for rich people.
Under Barack Obama the goal of Republican debt brinkmanship was twofold: to impose deficit reduction when deficit reduction was the wrong policy (because they knew it would raise unemployment and make the Democratic Party less popular) and to ensure it was imposed on the spending side (because they needed to serve the interests of their donors).
The first concern is no longer relevant but the second certainly is. An austerity package consisting entirely of spending cuts would be politically realistic if we had a Republican trifecta, but it can't possibly be the outcome of negotiations under divided government °unless° the House GOP also wields a credible threat to blow up the world. That's exactly why the threat is being made.
How on earth does Noah expect to get his tax increases unless Biden first eliminates that leverage? I'm not optimistic that this House will vote to raise taxes under any circumstances, but they certainly won't do it unless the White House first mints the coin or uses some other unorthodox strategy to defuse the bomb.
I agree, but actually saying "no" to brinkmanship means not allowing it to influence the outcome of the negotiations in any way, shape or form. IMHO that requires implementing a heterodox measure first, but Noah seems not to agree.
a) Both parties do not necessarily want inflation to come down b) Deficits do not have anything to so with inflation. The Fed controls inflation as it see fit.
you also said raise the cap on SALT deductions: wouldn't this be lowering the cap (increasing the cap from $25k to $50k would reduce tax revenues, while lowering it to $15k would increase them)
I was coming to comment on that -- I was wondering if he meant imposing some kind of means-test phase-out on the SALT deduction... So, have the cap phase from $10k down to zero as income rises between, say, $150 and $250k, double that for married filing jointly. Or something like that.
Another reasonable tax increase: raise the cap on payroll taxes. Currently, higher income Americans stop paying FICA taxes above about $150k. Remove that cap or make it way higher to better fund Social Security.
I'm glad to see that both of the things I was thinking of commenting on, somebody already brought up. I'm surprised that for an article on this topic, Noah left out uncapping the FICA OASDI contribution. People have been kicking that one around since the days of Bush's attempt to turn the program into a publicly-funded 401(k). At the time uncapping that part of the FICA tax would've closed basically all of the projected long-term deficit.
The private account carve-out was always a fabulously stupid idea. The whole "private account" revolution has mostly hurt anyone below like the 99th percentile, and 401(k)s in particular are an incredible racket. The fund managers charge way more than they should, to do very little of value. We'd be much better off scrapping the alphanumeric soup of accounts, and then giving people claims on target-date tranches within a single enormous sovereign wealth fund, and doing all this as an _add-on_ to Social Security, not a carve out. Pair it with the Baby Bonds / Universal Basic Wealth idea, so everyone gets some seed money in the fund from birth, and then do Postal Banking as the front end -- you get a basic checking account, plus access to move money in and out of the super-basic Vanguard-ish target date funds. For funsies, you also could give the Fed the ability to do monetary policy without Cantillon problems by creating a UBI that deposits into the accounts, with the Fed having the ability to tweak the monthly check up and down.
If you made it mandatory to process paychecks by way of direct deposit into postal bank accounts, you could pretty trivially convert to a consumption tax by not taxing money until it's withdrawn. As long as you leave it in the bank or invest it through the SWF, the money goes untaxed. You can still preserve progressivity, or make certain classes of consumption exempt if you want (e.g. exclude debit card swipes for certain classes of purchase like groceries). Though honestly I think it's better to avoid that kind of complexity with exclusions.
I prefer to add "consumption-ness" to an income tax by allowing deductions of certain non-consumption categories like retirement, education savings. With a VAT instead of wage tax for CTC/unemployment insurance and SS. For health insurance, I'd like to get employers out but keep private insurers in. I hold out more hope of private insurers finding ways to incentivize providers to be efficient than Medicare for All could. (Problem: if this is done with tax credits, it removes this category of consumption from being finance with the VAT. )
My subscription doesn't run out til Jun 17 yet Substack pops up a message as if I do not have a valid subscription forces me to login again and then says everything is ok.
Same problem occurs on Pielkes substack and it is irritating.
Running out of money in the SS trust fund isn't a problem. We'd just continue to pay benefits as we do now, supplement SS contributions from general revenu. I have no problem raising contributions to keep SS solvent, but I promise you, no one in either party will tell seniors: we're cutting your benefits cause the trust fund is broke.
Republicans don't intend to tell seniors "we're cutting your benefits because the trust fund is broke". They intend to refuse to cooperate with anything Democrats would do to fix the situation, and then when benefits get cut, in keeping with the laws on the books, claim that it's all the fault of those dastardly Democrats, who refused to let Republican heroes make the hard necessary sacrifices to rescue Social Security over the last fifty years. And their core voters will believe them because they live in an alternate reality, where the only truth tellers are networks like OAN and NewsMax.
Even worse, many of the GOP legislators are high on their own supply. See: current debt ceiling shenanigans. As Alexandra Petri put it, "We will hold the country hostage until our demands are met — once we know them!"
Agreed. This has always been a nonsensical right-wing argument: "Let's cut Social Security benefits, because otherwise we might someday be forced to cut Social Security benefits."
But eliminating the ceiling on SS-taxable earned income is still one of the best available reforms. And another one (which wouldn't even be a tax increase) would be to get rid of the pointless partition that separates the "Social Security trust fund" from the "Medicare trust fund". Just make it a single tank filled by a single faucet and you can't have the ridiculous pseudo-problem of one fund running low before the other one does.
The problem with your thesis is that the US is just about the worst place in the developed world to be poor, and the best place to be rich.
I can only conclude the American tax and transfer system is too ungenerous and should be expanded further, and if it involves increasing the tax take, so be it.
Re: "In general, fiscal deficits are inflationary." That's not true. In the 1950s and 1960s, we had balanced budgets and inflation. We even paid down the World War II debt and experienced inflation. Economic expansion is inflationary, particularly expansion in the real economy of goods and services rather than prestige goods. Austerity is just an excuse to confine economic growth to goods that do not require input goods or services to create. Austerity benefits those who use money to keep score, while it harms those who use it to buy things like food, clothing and shelter.
It seems profoundly immoral to me to raise taxes on the younger working population to finance retirement benefits which those younger working people themselves will likely never see.
As regards dealing with the crisis, the platinum coin is an obvious gimmick. The better alternatives are
* Disregard the ceiling and issue new debt. Dare the Repubs to challenge it, and the SC to enforce a default
* Premium bonds. Issue new debt with a high coupon rate, sell it at a premium and retire old debt. It's no more artificial than the devices that are already in use.
The second is safer, but the first would be a clear statement of unwillingness to negotiate with terrorists.
But the coin is also "no more artificial than the devices that are already in use".
As I understand it (h/t Krugman) if the Fed deposits a $1 trillion platinum coin in its account, it won't sit idly by and allow the money supply to increase by a trillion dollars. It will sell the public a trillion dollars worth of the Treasuries on its balance sheet, so the money supply remains unchanged.
Like the premium bond approach, this is just a way to increase the *true* value of *public* debt outstanding which doesn't require new legal authority to increase the *face* value of *total* debt outstanding (publicly held plus Fed-held). Premium bonds create a gap between face value and true value, whereas the coin allows the Fed to reduce the gap between total debt and publicly held debt.
When the trillion dollar coin is deposited (why not 100 trillion to be on the safe side) the Fed does not need to do anything except note assets up by 100 trillion and labilities up by 100 trillion.
Where to cut spending: subsidized insurance for disaster payments. Ethanol subsidy/mandate. Enforcment of Jones Act, NEPA.
Really a tax but, impute employer cost of health insurance as income and allow people to switch to ACA. Higher water charges from federal water projects,
Tax increase idea: what about amending IRC § 102 to say gifts and inheritances over a certain de minimis amount are taxable income? It might gain traction because the messaging in favor of the change could be simple. E.g., "you earn your money working, so you have to pay tax on it, but if someone's income is just gifts and inheritances from their rich parents, they don't pay a dime of income tax."
apologies I can't seem to reply to your other comment.
isn't the gift tax exclusion ~17k? That is pretty comparable to the standard deduction in my head. I don't really understand estate/inheritance taxes at all, so I can't comment on how they function
This is a good question! Here's how I usually explain it to clients. (The numbers adjust for inflation every year; I'll use 2023 amounts. I've also simplified how some of this works for the sake of clarity, so don't take this as tax advice.)
When a U.S. person passes away, the general rule is their estate will owe federal estate tax if the decedent's net worth exceeded $12.92 million on the day of death. (This tax is reported on a Form 706.) The obvious loophole, then, is to give away enough money before you die so your net worth is under that $13-million-ish lifetime exemption. So there's a loophole-closing regime called the "gift tax." The idea is that if someone gives away, say, $1 million, now their lifetime exclusion is only $11.92 million. (Giftors report these transactions on a Form 709.) If you give away small stuff it doesn't matter--Grandma doesn't have to file a 709 just because she gave her grandkids socks for Christmas. But once a taxpayer has given someone over $17K, the IRS makes them start filing the forms to keep track of how much of their lifetime exclusion is left.
Is your idea that lumping in estate/gift income with labor/capital income raises the marginal rate on those things? It might not -- individuals would then be able to use losses to offset estate/gift tax income. I suspect that preventing exactly this is the reason that estate/gift income was separated into subtitle B, but I don't know the history there.
I'd think it would because the lifetime estate/gift tax exclusion is so high, but that's just a guess.
Your comment made me realize I didn't know the legislative history very well, either, so I did some digging. It looks like gifts were originally excluded from income tax in the Revenue Act of 1913, but Congress didn't establish a modern estate tax until 1916. From Commissioner v. Duberstein, 363 U.S. 278 (1960):
"The exclusion of property acquired by gift from gross income under the federal income tax laws was made in the first income tax statute[4] passed under the authority of the Sixteenth Amendment, and has been a feature of the income tax statutes ever since. The meaning of the term "gift" as applied to particular transfers has always been a matter of contention.[5] Specific and illuminating legislative history on the point does not appear to exist. Analogies and inferences drawn from other revenue provisions, such as the estate and gift taxes, are dubious. See Lockard v. Commissioner, 166 F.2d 409."
The demand for austerity would be less laughable if you, or anyone in economic chattering classes, had a remotely plausible explanation for the uptick in inflation that austerity is supposed to control. You don't, no one does: This is largely because, as best I can tell, no one has done any of the necessary empirical research, which would involve an effort to determine who is raising prices, why they are raising them, who is benefitting from those price increases, and who is being hurt by them.
You can't possibly make rational, coherent policy aimed at curbing inflation if you don't really understand much of anything about it. The theory you and others advance to explain it -- "too much federal deficit spending" -- is just obviously wrong, or, more charitably, not really right enough to justify policies that, ultimately, wind up screwing the very people most likely to be adversely affected by the "inflation" you're trying to bring under control.
Thanks for that pie chart, it is awesome! I’m so tired of bickering about income tax rates and discretionary spending when there are bigger fish to fry. If really want to implement austerity, I would do this: (1) put a sliding scale on payroll tax rates and contribution limits to force them to equal Social Security plus Medicare. Implement a VAT or national sales tax with a sliding scale rate to pay for the red pie slice (deficit), and (3) implement a temporary tax to draw down our existing debt in 10 or 15 years. This would create an incentive for lawmakers to drive efficiencies in all costs and creatively look for ways to increase revenues in order to keep the payroll and VAT rates low to spur growth and for political reasons.
But Republicans are terrorists (literally, not figuratively). The majority of Congressional Republicans endorsed terrorist attempts to overthrow the US government, and are backing the leader of the terrorist movement as their next presidential candidate. Saying "US governance is shaky" is being generous.
If you really want to increase tax revenue, none of your proposals do much. There simply aren't that many people in the top tax brackets.
If you want a dent in GDP, you're going to have to notice that the median taxpayer is paying <8% income tax (12% marginal, but after the increased standard deduction and 10% initial bracket...). This is SIGNIFICANTLY lower than it was back in the late 90s.
Raise taxes on everyone, that's the only way.
Agree somewhat, but there is a lot of room for low deadweight loss taxation of high income people: a) eliminate business taxes, impute income to owners to be taxed at owner's personal income tax rate. Treat indexed capital gains as ordinary income. [All income is ordinary income] No rebasing of indexed capital gains at inheritance and lower exemption of inheritances. Convert deductions for tax favored consumption (mortgage interest, charitable deductions) to partial tax credits.
And, though not especially progressive, shift from financing SS and Medicare (and any other safety net transfers, UI or CTC) from wage taxation to VAT and Pigou taxation of net CO2 emissions.
But rates on more than just the very top incom earners will have to go up too.
Corporate share of federal income taxes is way down from last century
I don't disagree with the macro analysis here but I think Noah is making a seriously confused political argument.
Both parties should want fiscal austerity because both parties want inflation to come down. And since we have divided government, it can't be implemented entirely through spending cuts (as the Republicans would prefer) or entirely through tax increases (as the Democrats might like). There has to be negotiation to reach agreement on some combination of the two.
That has absolutely nothing to do with the House GOP's threat of debt default, which shouldn't be entertained under any circumstances. Biden needs to move ahead with minting the platinum coin, and if there's any doubt about the legality of that approach he'll need to invoke the Fourteenth Amendment as a backup.
This isn't an alternative to sensible bipartisan negotiation; it's the °prerequisite° for sensible negotiation.
Honestly, I think threatening all that extreme stuff just makes the U.S. look even more like a banana republic. Do it if you have to, but don't feed the brinksmanship.
A country where one party attempts to stage a coup when it loses *is* a banana republic, at least as long as that party is treated as a legitimate actor. Playing hardball on fiscal policy isn't brinkmanship, embracing traitors (again, literally, not figuratively) is.
I got to agree with Jeff Rigsby here.
Your basic problem is Trumpism/populism being able to seize such a commanding height in Congress. Kevin McCarthy had to cave to the nutters to get his leadership position. Who knows what these people are willing to do? They do seem worse than the tea party nutters of the Obama years... To think we'd miss those as*holes...
It's too much to hope for the GOP to become a normal party again anytime soon but one thing you shouldn't do is pretend they are a normal, potentially capable of governing party. I've never liked them but they are not anymore and that's different very different from even 10 years ago...
By "extreme stuff" do you mean minting the coin, or arguing that it's unconstitutional to appropriate money and then not commit to paying it out?
The Fourteenth Amendment approach doesn't strike me as extreme at all. No other major country has a statutory debt ceiling, just because passing a budget and not paying for it would be "banana republic" behavior. The platinum coin and high-interest bond approaches do look a little goofy but given the current makeup of the Supreme Court, I think a minimum of two strategies would be prudent.
Surely the US would be taken more seriously, not less, if these crises stopped happening?
The platinum coin *sounds* goofy, but it's not really. It's just a way for the Treasury to print electronic money (by having the Fed do it when they accept the platinum coin deposits.) That's a totally normal ability in this age. It's actually totally messed up that private banks can print electronic money almost without limits, while the government, which is ultimately responsible for the effects of that money, can't print a penny.
Are we sure that Republicans want inflation to come down?
There is that, of course.
Cutting spending has pros and cons from the GOP's point of view. It shrinks the government but it also causes inflation to fall while Biden is running for reelection.
Raising taxes is bad for rich people and it also helps Biden politically via lower inflation. That's why I have trouble understanding why Noah even considers it in the possibility space.
Yeah, Republican's primary goals are as follows: (1) Ensuring Biden doesn't win re-election. As long as inflation remains persistent, this only helps their chances at winning the 2024 election. (2) Keeping taxes low for rich people.
Just to refine the thought a little:
Under Barack Obama the goal of Republican debt brinkmanship was twofold: to impose deficit reduction when deficit reduction was the wrong policy (because they knew it would raise unemployment and make the Democratic Party less popular) and to ensure it was imposed on the spending side (because they needed to serve the interests of their donors).
The first concern is no longer relevant but the second certainly is. An austerity package consisting entirely of spending cuts would be politically realistic if we had a Republican trifecta, but it can't possibly be the outcome of negotiations under divided government °unless° the House GOP also wields a credible threat to blow up the world. That's exactly why the threat is being made.
How on earth does Noah expect to get his tax increases unless Biden first eliminates that leverage? I'm not optimistic that this House will vote to raise taxes under any circumstances, but they certainly won't do it unless the White House first mints the coin or uses some other unorthodox strategy to defuse the bomb.
You should reread the post, because that's exactly what Noah is saying. No to debt ceiling brinkmanship and yes to subsequent austerity negotiations.
I agree, but actually saying "no" to brinkmanship means not allowing it to influence the outcome of the negotiations in any way, shape or form. IMHO that requires implementing a heterodox measure first, but Noah seems not to agree.
a) Both parties do not necessarily want inflation to come down b) Deficits do not have anything to so with inflation. The Fed controls inflation as it see fit.
At the end of paragraph three, I think you meant to write that the Democrats like tax increases.
yep
you also said raise the cap on SALT deductions: wouldn't this be lowering the cap (increasing the cap from $25k to $50k would reduce tax revenues, while lowering it to $15k would increase them)
Yes, raising it would reduce tax revenues, but it's $10k now – that's set to expire in 2025. Maybe it should recommend *extending* the cap?
Just mentioning in general
I was coming to comment on that -- I was wondering if he meant imposing some kind of means-test phase-out on the SALT deduction... So, have the cap phase from $10k down to zero as income rises between, say, $150 and $250k, double that for married filing jointly. Or something like that.
Another reasonable tax increase: raise the cap on payroll taxes. Currently, higher income Americans stop paying FICA taxes above about $150k. Remove that cap or make it way higher to better fund Social Security.
I'm glad to see that both of the things I was thinking of commenting on, somebody already brought up. I'm surprised that for an article on this topic, Noah left out uncapping the FICA OASDI contribution. People have been kicking that one around since the days of Bush's attempt to turn the program into a publicly-funded 401(k). At the time uncapping that part of the FICA tax would've closed basically all of the projected long-term deficit.
The private account carve-out was always a fabulously stupid idea. The whole "private account" revolution has mostly hurt anyone below like the 99th percentile, and 401(k)s in particular are an incredible racket. The fund managers charge way more than they should, to do very little of value. We'd be much better off scrapping the alphanumeric soup of accounts, and then giving people claims on target-date tranches within a single enormous sovereign wealth fund, and doing all this as an _add-on_ to Social Security, not a carve out. Pair it with the Baby Bonds / Universal Basic Wealth idea, so everyone gets some seed money in the fund from birth, and then do Postal Banking as the front end -- you get a basic checking account, plus access to move money in and out of the super-basic Vanguard-ish target date funds. For funsies, you also could give the Fed the ability to do monetary policy without Cantillon problems by creating a UBI that deposits into the accounts, with the Fed having the ability to tweak the monthly check up and down.
Whatever, but just don't fund it with a wage tax. Use a VAT
If you made it mandatory to process paychecks by way of direct deposit into postal bank accounts, you could pretty trivially convert to a consumption tax by not taxing money until it's withdrawn. As long as you leave it in the bank or invest it through the SWF, the money goes untaxed. You can still preserve progressivity, or make certain classes of consumption exempt if you want (e.g. exclude debit card swipes for certain classes of purchase like groceries). Though honestly I think it's better to avoid that kind of complexity with exclusions.
I prefer to add "consumption-ness" to an income tax by allowing deductions of certain non-consumption categories like retirement, education savings. With a VAT instead of wage tax for CTC/unemployment insurance and SS. For health insurance, I'd like to get employers out but keep private insurers in. I hold out more hope of private insurers finding ways to incentivize providers to be efficient than Medicare for All could. (Problem: if this is done with tax credits, it removes this category of consumption from being finance with the VAT. )
Tax all income, not just wages, no cals, with Soc Sec tax like we do Medicare tax, seems easy since already do for Medicare.
My subscription doesn't run out til Jun 17 yet Substack pops up a message as if I do not have a valid subscription forces me to login again and then says everything is ok.
Same problem occurs on Pielkes substack and it is irritating.
Can you email support@substack.com? Sounds like a bug.
It is, one of many I suspect. They will have a list of them and just need to get on with it. It seems to relate to access the product from the email.
I won't email them, sorry.
I think it is better a substack author does it with a complaint about service levels for his customers.
I asked Pielke to do the same but he might have ignored me.
Plus, in case their is any doubt, I don't work for Elon Musk and am not just having a go on his behalf.
Thanks.
Running out of money in the SS trust fund isn't a problem. We'd just continue to pay benefits as we do now, supplement SS contributions from general revenu. I have no problem raising contributions to keep SS solvent, but I promise you, no one in either party will tell seniors: we're cutting your benefits cause the trust fund is broke.
Republicans don't intend to tell seniors "we're cutting your benefits because the trust fund is broke". They intend to refuse to cooperate with anything Democrats would do to fix the situation, and then when benefits get cut, in keeping with the laws on the books, claim that it's all the fault of those dastardly Democrats, who refused to let Republican heroes make the hard necessary sacrifices to rescue Social Security over the last fifty years. And their core voters will believe them because they live in an alternate reality, where the only truth tellers are networks like OAN and NewsMax.
Even worse, many of the GOP legislators are high on their own supply. See: current debt ceiling shenanigans. As Alexandra Petri put it, "We will hold the country hostage until our demands are met — once we know them!"
https://www.washingtonpost.com/opinions/2023/04/21/republican-debt-ceiling-standoff-holdup-satire/
Agreed. This has always been a nonsensical right-wing argument: "Let's cut Social Security benefits, because otherwise we might someday be forced to cut Social Security benefits."
But eliminating the ceiling on SS-taxable earned income is still one of the best available reforms. And another one (which wouldn't even be a tax increase) would be to get rid of the pointless partition that separates the "Social Security trust fund" from the "Medicare trust fund". Just make it a single tank filled by a single faucet and you can't have the ridiculous pseudo-problem of one fund running low before the other one does.
Excellent ideas, both. Thanks!
Fund both with a VAT.
The problem with your thesis is that the US is just about the worst place in the developed world to be poor, and the best place to be rich.
I can only conclude the American tax and transfer system is too ungenerous and should be expanded further, and if it involves increasing the tax take, so be it.
Re: "In general, fiscal deficits are inflationary." That's not true. In the 1950s and 1960s, we had balanced budgets and inflation. We even paid down the World War II debt and experienced inflation. Economic expansion is inflationary, particularly expansion in the real economy of goods and services rather than prestige goods. Austerity is just an excuse to confine economic growth to goods that do not require input goods or services to create. Austerity benefits those who use money to keep score, while it harms those who use it to buy things like food, clothing and shelter.
It seems profoundly immoral to me to raise taxes on the younger working population to finance retirement benefits which those younger working people themselves will likely never see.
Rather than simply cutting benefits for boomers, who are receiving much more in benefits than they paid into the system anyway
As regards dealing with the crisis, the platinum coin is an obvious gimmick. The better alternatives are
* Disregard the ceiling and issue new debt. Dare the Repubs to challenge it, and the SC to enforce a default
* Premium bonds. Issue new debt with a high coupon rate, sell it at a premium and retire old debt. It's no more artificial than the devices that are already in use.
The second is safer, but the first would be a clear statement of unwillingness to negotiate with terrorists.
But the coin is also "no more artificial than the devices that are already in use".
As I understand it (h/t Krugman) if the Fed deposits a $1 trillion platinum coin in its account, it won't sit idly by and allow the money supply to increase by a trillion dollars. It will sell the public a trillion dollars worth of the Treasuries on its balance sheet, so the money supply remains unchanged.
Like the premium bond approach, this is just a way to increase the *true* value of *public* debt outstanding which doesn't require new legal authority to increase the *face* value of *total* debt outstanding (publicly held plus Fed-held). Premium bonds create a gap between face value and true value, whereas the coin allows the Fed to reduce the gap between total debt and publicly held debt.
When the trillion dollar coin is deposited (why not 100 trillion to be on the safe side) the Fed does not need to do anything except note assets up by 100 trillion and labilities up by 100 trillion.
Where to cut spending: subsidized insurance for disaster payments. Ethanol subsidy/mandate. Enforcment of Jones Act, NEPA.
Really a tax but, impute employer cost of health insurance as income and allow people to switch to ACA. Higher water charges from federal water projects,
Probably worth mentioning how progressives can have their cake and eat it too by raising the earnings cap on social security taxes
Tax increase idea: what about amending IRC § 102 to say gifts and inheritances over a certain de minimis amount are taxable income? It might gain traction because the messaging in favor of the change could be simple. E.g., "you earn your money working, so you have to pay tax on it, but if someone's income is just gifts and inheritances from their rich parents, they don't pay a dime of income tax."
apologies I can't seem to reply to your other comment.
isn't the gift tax exclusion ~17k? That is pretty comparable to the standard deduction in my head. I don't really understand estate/inheritance taxes at all, so I can't comment on how they function
This is a good question! Here's how I usually explain it to clients. (The numbers adjust for inflation every year; I'll use 2023 amounts. I've also simplified how some of this works for the sake of clarity, so don't take this as tax advice.)
When a U.S. person passes away, the general rule is their estate will owe federal estate tax if the decedent's net worth exceeded $12.92 million on the day of death. (This tax is reported on a Form 706.) The obvious loophole, then, is to give away enough money before you die so your net worth is under that $13-million-ish lifetime exemption. So there's a loophole-closing regime called the "gift tax." The idea is that if someone gives away, say, $1 million, now their lifetime exclusion is only $11.92 million. (Giftors report these transactions on a Form 709.) If you give away small stuff it doesn't matter--Grandma doesn't have to file a 709 just because she gave her grandkids socks for Christmas. But once a taxpayer has given someone over $17K, the IRS makes them start filing the forms to keep track of how much of their lifetime exclusion is left.
Is your idea that lumping in estate/gift income with labor/capital income raises the marginal rate on those things? It might not -- individuals would then be able to use losses to offset estate/gift tax income. I suspect that preventing exactly this is the reason that estate/gift income was separated into subtitle B, but I don't know the history there.
I'd think it would because the lifetime estate/gift tax exclusion is so high, but that's just a guess.
Your comment made me realize I didn't know the legislative history very well, either, so I did some digging. It looks like gifts were originally excluded from income tax in the Revenue Act of 1913, but Congress didn't establish a modern estate tax until 1916. From Commissioner v. Duberstein, 363 U.S. 278 (1960):
"The exclusion of property acquired by gift from gross income under the federal income tax laws was made in the first income tax statute[4] passed under the authority of the Sixteenth Amendment, and has been a feature of the income tax statutes ever since. The meaning of the term "gift" as applied to particular transfers has always been a matter of contention.[5] Specific and illuminating legislative history on the point does not appear to exist. Analogies and inferences drawn from other revenue provisions, such as the estate and gift taxes, are dubious. See Lockard v. Commissioner, 166 F.2d 409."
The demand for austerity would be less laughable if you, or anyone in economic chattering classes, had a remotely plausible explanation for the uptick in inflation that austerity is supposed to control. You don't, no one does: This is largely because, as best I can tell, no one has done any of the necessary empirical research, which would involve an effort to determine who is raising prices, why they are raising them, who is benefitting from those price increases, and who is being hurt by them.
You can't possibly make rational, coherent policy aimed at curbing inflation if you don't really understand much of anything about it. The theory you and others advance to explain it -- "too much federal deficit spending" -- is just obviously wrong, or, more charitably, not really right enough to justify policies that, ultimately, wind up screwing the very people most likely to be adversely affected by the "inflation" you're trying to bring under control.
Thanks for that pie chart, it is awesome! I’m so tired of bickering about income tax rates and discretionary spending when there are bigger fish to fry. If really want to implement austerity, I would do this: (1) put a sliding scale on payroll tax rates and contribution limits to force them to equal Social Security plus Medicare. Implement a VAT or national sales tax with a sliding scale rate to pay for the red pie slice (deficit), and (3) implement a temporary tax to draw down our existing debt in 10 or 15 years. This would create an incentive for lawmakers to drive efficiencies in all costs and creatively look for ways to increase revenues in order to keep the payroll and VAT rates low to spur growth and for political reasons.