Posted on 04/25/2011 6:21:54 AM PDT by Kaslin
The U.S. will hit the borrowing danger zone in far less time than we've been led to believe. This is why the "Maxed Out America" initiative of the PJ Institute demands the immediate attention of the political class and the American people.
Washington’s recent budget deal represents at best a tiny baby step in the right direction. What is at stake in the budget battles to come is exponentially higher. This is why the “Maxed Out America” initiative of the PJ Institute demands the immediate attention of the political class and the American people.
Everyone knows that an individual or family can only afford to go so far into debt before they become “maxed out.” At that point, lenders charge higher interest rates, refuse to extend additional credit, and cut existing credit lines.
The idea that there are limits on borrowing applies equally to the federal government, but its determination and ability to avoid grim reality have been much greater. For decades, Beltway politicians, with recent assistance from the Federal Reserve, have used tools not available to individuals and families to push off the government’s reckoning date. As of April 14, they have run up the nation’s “debt held by the public” — really amounts owed to individuals, corporations, and other countries — to over $9.6 trillion, an amount that is roughly 65% of the nation’s annual output, or Gross Domestic Product (GDP).
How far can a government run up its debts before lenders either decide to stop lending or raise their interest rates? As PJ Institute economist Laurence Kotlikoff noted in an early April column, there is a consensus that a country reaches “a critical insolvency threshold” once its public debt hits 90% of GDP. At that point, lender cutoffs and interest-rate premiums become real possibilities. Call it the point where we become “Maxed Out America.”
How far are we from the 90% Maxed Out America threshold? Not far at all.
Kotlikoff notes that the “alternative fiscal scenario” released by the Congressional Budget Office (CBO) in June 2010 “had us going critical … in 2021.”
Since then, a lot has happened. Unfortunately, almost all of it has brought Maxed Out America closer:
– In December, Congress and the president agreed to keep the current income tax system in place through the end of 2012, and to cut individual Social Security taxes by two percentage points during 2011. Kotlikoff calculates that these actions alone moved us two years closer to Maxed Out America.
– Kotlikoff further notes that CBO’s March 18 forecast which incorporated the president’s budget assumed that income tax rates will remain essentially unchanged for the next ten years. That moved Maxed Out America to late 2017, a scant 6-1/2 years from now.
– Since the recession began, CBO’s estimates of federal tax collections have been consistently overoptimistic. For example, it originally thought that fiscal 2010 collections would come in at $2.268 trillion. Actual collections were over $100 billion lower. CBO estimates that collections will grow by 14% in fiscal 2012 and 2013, and by another 11% in fiscal 2014, reaching over $3.2 trillion. With the economic recovery remaining sluggish at best, there’s reason to doubt that these increases will materialize.
– Further complicating matters, lackluster employment growth since the recession ended in June 2009 has been dominated by temporary employees. Temp services have added 508,000 workers in the seven quarters since the recession ended, while the rest of the economy has lost — that’s right, lost — 263,000 jobs. Temps are usually paid less than full-time employees, and therefore generate less in payroll and income tax collections for Uncle Sam. If this trend continues, actual collections will lag CBO’s estimates even further.
If we’re lucky, the positive results of the recent 2011 budget deal might offset the negative effect of the last two factors just cited, and we still have 6-1/2 years until Maxed Out America arrives.
At least one influential entity is concerned that we may have nowhere near that much time. Last Monday, ratings agency Standard and Poor’s cut its long-term outlook on U.S. sovereign debt for the first time from “stable” to “negative.” The firm believes that there is a one-third chance that it will have to issue an actual downgrade of our debt in the next two years. If ratings agencies and lenders determine that we are not serious about addressing our problems, they may begin to raise rates or reduce their exposure even before we hit the Maxed Out level.
The real problem, of course, is spending, which, even after the budget deal, will have grown by over $1 trillion in four years, or about 40%, by the end of fiscal 2011. Maxed Out America cannot be avoided at currently projected spending levels.
The PJ Institute’s Maxed Out America Special Report has a stern warning about the consequences of doing nothing: “Our sixteen year old kids, entering the tenth grade of high school in the fall, may face this economic impact when they graduate from college in 2017, if not sooner.” Are we as a nation willing to accept that possibility?
Given the oncoming calamity, Washington’s lack of serious urgency is scandalous. The Maxed Out America initiative intends to change that. Readers should ensure that their congressperson and senators understand that they, and we, are quickly running out of time.
Well over half of the population believe that the solution to the ‘Maxed out problem,’ is to tax the rich some more. People are’t paying their fair share....blah blah blah.
I don’t believe it at all. We still have a huge advantage over China. We are DOUBLE their GDP if not more. We have a long time before we are in deep trouble. All this talk is just doom and gloom. However, it is good that we do something about this debt. It could be wiped out easily if people would cooperate. I wish we would have a debt relief campaign. Why not? Another thing is to have a debt telethon. I bet people would donate a lot of money. We are the dumbest nation on Earth at times when dealing with this debt. Cutting spending is another way that will lower the debt some but more options should be available. Of course a national sales tax would do the trick too if we got rid of the income tax but people like to have their deductions which is so ridiculous when you figure that you would only be taxed on products and services that you want. We will never get out of this if people won’t budge on these things. We could get rid of 90 percent of the IRS if we would have a simple National Sales Tax. It won’t happen as people like their little “bonus” at the end of the year......pity.
I don’t think taxing the rich is a good idea at all. But when BP does not pay a penny on taxes that can be a problem. Yes they lost some cash but still. Most people and companies don’t pay taxes. I paid 10 grand this past year in federal but I have paid way more a few years ago. A National Sales tax would solve all of our problems.
The current crop in Washington just don’t seem to understand that truly rich people don’t necessarily have high incomes. If they want to tax rich people, it will take a retail sales tax.
And I'll bet most of those people run their own personal finances in a similar manner... maxing out credit card after credit card. Having so many people who do not believe that the government should live within our means is most likely caused by the same people not thinking that they should live within their own means.
Time for another nap...
I would support a national sales tax on two conditions
A constitutional amendment forbidding a federal income tax
A constitutional amendment setting the highest rate a national sales tax could be
Without this protection we will end up with both the income tax and the sales tax, and like the income tax that started out as low, the sales tax would keep creeping up.
Maxed Out America is already here.
Next stop to me appears to be Bankrupt America.
Next stop? It has been his plan from the beginning
Anytime you don’t like what you hear you resort to child’s name calling. One day I pray that you can provide an intelligent post. Unfortunately that is asking too much. I understand that topic at hand is over your head but you don’t have to go Kindergarten on us grown ups.
Your profile cannot possibly be true. roll eyes. You would win a pulitzer with that fiction you wrote. There is no way that you are any of those things if you cannot simply provide an intelligent post to this thread. You are always coming over and giving cracks and then leaving. I bet you could provide a lot to this site but you refuse to do so. Pity because if you are an engineer (you and Obama have a lot in common with your back stories), then you should provide something, anything, a sentence, anything to this site.
Your idea for government debt retirement is a debt telethon... and I'm the one who has to defend an intelligent conversation? Really?
Cutting the spending is the PRIMARY way to control our spending problem. We don't have a problem with taxes that are too low. We have a problem with spending that is too high. Every time we increase revenue to the government, government expands. When times are lean, we cut back... but the government MIGHT slow the rate of growth... and call that a cut. Your idea is to simply give them more money... Too long we've been on this road and it's time it changed.
An analogy for where we currently are is a family which has seen its income rise over the years... and driven up spending well beyond the income. They have gone from credit card to credit card after they've long since maxed out their home equity. The financial solution for this family is fairly obvious... cut the spending. Instead, they are out looking for additional lines of credit. Your idea is to hold a neighborhood bake sale and give them the proceeds. It's ludicrous for anyone with any financial sense.
Don't post to me anymore. You are rude and your arguments are pedestrian. The only refutation they need is a repost (as I did). I know as I write this that you will reply with more schoolyard belligerence... sad, really.
With state sales taxes often approaching 10%, a national sales tax will drive it to over 20%. And unlike predictions, I expect the income tax would remain in place as well.
Shall we also demand a sales tax on all homes? If that gets an exemption, why not food and medicine? Sounds great until the sales tax software and sales tax laws get nitty gritty - the states where peanuts are not taxed, but salted ones aren't, but honey roasted peanuts aren't but chocolate covered ones are. Now have the federal government adding its own layer of exemptions. It'll be as complicated as the tax code.
Just simplify the income tax and apply it to everyone. Then punish illegal aliens and Americans who work under the table. It's more fair, and a heck of a lot less complicated.
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