Is the United States Bankrupt?

FEDERAL RESERVE BANK OF ST. LOUIS REVIEW ^ | July 1, 2006 | Laurence J. Kotlikoff

[pigdog]

"OK, so we're doomed without the Fairtax. "

That's not what was said, but we are "doomed" to do less well economically (and from the standpoint of individual freedom) by sticking with the existing tax system.

Please give a link to the SCOTUS ruling that you say ruled the federal government did no have the authority to levy a national sales tax. Otherwise the comment will just be ignored.

There have been SCOTUS rulings that said (and these have been posted several times on these tax threads) that the 16th gave the US no new taxing powers. In past years the income tax has been ruled both constitutional and unconstitutional in point of fact. SCOTUS can't seem to make up its mind.

Your "solutions" seem pretty empty since all I have seen so far amount to further government control and manipulation of the economy and the taxpayer. I'd rather see that ended by a tax law like the FairTax where anyone who wished to save and invest could do do so tax free and with complete transparency to the government and be free of their influence. Anything allowing the government to get it "oar in the water" is a non-starter. There's far too much governmental influence/control of individual resources as it is. Let's get rid of it.

And thanks I plan to continue working on the FairTax and once we pass it there will be a sizable surge of economic activity - and it won't be because the government was able to direct it, either.

[RipSawyer]

You can't "not spend" more than you were spending.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Well, that is what I was taught too but nearly everyday now I hear a news report with terms like "500 times smaller" or "300 percent less" so apparently the old rules don't apply anymore. Whenever I question this sort of construction some supposed scientist or engineer proceeds to lambast me for being out of date or something. I suppose I will have to go back to school to learn the new math.

[expat_panama]

I doubt the government can or will spend much of its "net worth".

It's a business thing.   Net Worth = Assets – Liabilities (from here)

Sure, the idiot press talks about "paying for tax-cuts" etc., but spending involves using up assets, not liabilities or net worth (with or without the "")..

fwiw, a big chunk of assets are stuff like cash on hand and funds owed to the government.  Some people like to think they're Scrooge McDuck trying to fill a money bin, but they're idiots.  Before I want the government to make me pay taxes, it first has to spend it's cash on hand before I give it any more.   Doing this won't make the US go bankrupt; not even "bankrupt".

[expat_panama]

I see you missed the unfunded $65.9 trillion fiscal-gap laying in commitments this government has signed us all and our children on to.

No, everyone knows that. 

I just didn't want to ramble on with stuff like the treasury will tax those payments to the tune of $20 trillion, that the payments are due in 30 years so at 2.5% inflation they'll amount to $33 trillion, --not to mention the fact that our kids will be smart enough to scrap those stupid entitlements long before any of that stuff ever comes up.

Dang, you got me rambling again!

[ancient_geezer]

Fine, however I really would like you to cite that U.S. Supreme Court ruling you say exists concerning a lack of authority for the national government to levey a general retail sales tax.

Especially considering that retail sales taxes are indirect taxes laid uniformly, i.e. with the same rate and law without regard to location in the United States, a tax definitely within the powers of Congress to lay and collect under Article I, Section 8, clause 1 of the Constitution.

[ancient_geezer]

so at 2.5% inflation they'll amount to $33 trillion

 

"this figure as our own government’s best estimate of its present-value budgetary shortfall."

Apparently you missed the statement, thus in present dollars would be a true $65 trillion.

Inflated future dollars, with which those future budgetary commitments would be made, would be a substantially higher number due to lower valued dollars after loss of purchasing power to provide the same benefit.

[expat_panama]

I really would like you to cite that U.S. Supreme Court ruling you say exists ...   ...Especially considering ... a tax definitely within the powers of Congress to lay and collect under Article I, Section 8, clause 1 of the Constitution.

Dang -nobody tells me anything around here, why am I always the last guy to get the news!!!

I tell you what, I share my link about the sales tax ruling if you share me your link that says the SCOTUS is now making sense and is following the Constitution. 

Amazing, --learn something new every day...

[ancient_geezer]

Your claim:

expat_panama #195: "Over a hundred years ago the US Supreme Court ruled that the federal government did not have the authority to levy a national sales tax"

Your response on challenge:

"I tell you what, I share my link about the sales tax ruling if you share me your link that says the SCOTUS is now making sense and is following the Constitution."

It would appear you are apparently passing gas.

[pigdog]

Sorry, but "net worth" has no relevance for paying money to entitlement benefactors. Nor do "assets" for the most part since the government seldom has little if any "cash on hand". They merely borrow it almost instantaneously when they think they need it.

"Before I want the government to make me pay taxes, it first has to spend it's cash on hand before I give it any more."

Sorry, too, to tell you that that's not the way things work. You'll cough up tax when he government sends "the man" out for it whether you think you want to or not. that's the way those sovereigns operate - maybe not in Panama, but here in the US.

[Ditto]

The Gokhale and Smetters measure of the fiscal gap is a stunning $65.9 trillion! This figure is more than five times U.S. GDP and almost twice the size of national wealth.

OK. Help me out here.

Lets say I'm a 30 year-old with an annual income of $50,000 and I buy a house with a 30 year mortgage of $250,000, or 5 times my "GDP" and twice the size of my wealth in savings, cloths, furniture, vehicles, jewelry, etc. Am I bankrupt?

[pigdog]

Yup, you've got the picture.

[Toddsterpatriot]

Why would I do that?

Most doom and gloomers think buying gold will save their soul.

Gold doesn't pay interest or dividend, nor can it be said to be worth anything as an appreciable asset.

Excellent. Glad to hear you understand basic economics and are therefore not a goldbug.

Unfortunately, people are using less and less of their income dollars to do the latter for the strong disincentives of high marginal tax rates on savings and investing

I think you meant former? Tax rates on investing have been reduced. Or hadn't you heard?

as well as inflationary expectations.

Inflationary expectations make people less likely to invest? How do you figure?

As the savings rate with respect to discretionary income more than apply demonstrates. In fact they have begun to actually head into negative territory as a savings rate. The are becoming net debtors instead of net investor/savers of income.

How much of the negative savings rate is capital gains taxes paid? How much capital gains do Americans earn which are not included in the savings rate?

[pigdog]

The best tax rate on investment would be zero ... and that's what it is under the FairTax.

That would also help encourage more to save than at present - when the savings rate is, basically, zero. It also will help most taxpayers by boosting their purchasing power.

It's time for the FairTax!!!

[pigdog]

Not if you've gots lotsa credit cards ... Just keep on borrowing and never mind the interest. Guys on this thread say it doesn't matter.

[Toddsterpatriot]

The best tax rate on investment would be zero ... and that's what it is under the FairTax.

I'm agnostic on the Fair Tax idea. I agree that it could be a good deal for say a 22 year old, fresh out of college, but what about people who've been working and saving for a while?

Let's say I'm 65 years old and have $1,000,000 in Muni bonds paying 4%. I'm happy to collect my $40,000 every year and now the fair tax comes along and suddenly my tax free income gets hit with a 24%, 19%, or whatever sales tax rate. What do Fair Tax proponents have for people who no longer have income tax obligations?

[ancient_geezer]

Most doom and gloomers think buying gold will save their soul.

Sorry to disappoint. I just figure that we will find it necessary to cause government to change its ways to solve the fiscal crisis that our kids and grand kids are headed for with no change from the status quo.

Only G'd can save man's soul, so even their you are far off the mark.

Excellent. Glad to hear you understand basic economics and are therefore not a goldbug.

I never said I was, in fact if you had been aware of my posting history as regards the lack of solution in gold standards and such you would have known better.

I think you meant former? Tax rates on investing have been reduced. Or hadn't you heard?

Why are we taxing investing at all? That which you tax you get less of, not more. Just reducing such is a temporary bandaid at best.

In fact the marginal rate on a dollar earned, regardless of how it may be aquired, effectively raises the value of doing anything other than earning that next one.

Production suffers both from loss of capital input, as well as incentive to work. That is especially true where there are a gazillion government subsidies and incentives providing reasons to avoid that that next dollar because the change in the tax bite is more than the perceived value of consuming and taking the day off, or life off in some all to plentiful cases.

Inflationary expectations make people less likely to invest? How do you figure?

Makes it more desirable to spend for consumption today rather than invest and grow for tomorrow's security and less than better deal.

Given that true gains can be obtained without inflation, inflation merely assures that those on the margin making a choice of spend more now rather than save/invest to do so later, choose to consume rather than build wealth for future consumption.

The proof lay in the what is happening to the utilization of income that lay in the personal income data.

 

How much of the negative savings rate is capital gains taxes paid?

None, as the savings rate is calculated from after tax income, (i.e. discretionary income).

Realized capital gains are a component of income, just as wages, dividends and interest are. The sum less taxes paid is the basis of discretionary income.

How much capital gains do Americans earn which are not included in the savings rate?

The savings rate is that faction of income left after taxes and spending for consumption. If it's negative, one is consuming in excess of their realized income and gains.

[Toddsterpatriot]

The Gokhale and Smetters measure of the fiscal gap is a stunning $65.9 trillion! This figure is more than five times U.S. GDP and almost twice the size of national wealth.

The problem with discussing "unfunded liabilities" in the same sentence as "national wealth" is that these liabilities do not impact national wealth. They take money from one group of Americans (workers) and give it to another set of Americans (retirees). When you add the payment and the receipt together, it's a wash, as far as national wealth is concerned.

[Toddsterpatriot]

Sorry to disappoint. I just figure that we will find it necessary to cause government to change its ways to solve the fiscal crisis that our kids and grand kids are headed for with no change from the status quo.

I suspect payroll taxes will increase and Social Security benefits will be reduced. The nation will survive. Privatizing would be even better, but I won't hold my breathe.

I never said I was, in fact if you had been aware of my posting history as regards the lack of solution in gold standards and such you would have known better.

Sorry, not familiar with your history. I keep running into gloomers who are goldbugs. Sorry to incorrectly paint you with that brush.

Why are we taxing investing at all? That which you tax you get less of, not more. Just reducing such is a temporary bandaid at best.

I'm on board. The best Cap Gains rate is 0%.

Makes it more desirable to spend for consumption today rather than invest and grow for tomorrow's security and less than better deal.

Inflation makes me want to invest more in stocks which raise their dividends.

None, as the savings rate is calculated from after tax income, (i.e. discretionary income).

Sorry. Capital gains taxes paid are subtracted from income when determining savings.

Realized capital gains are a component of income, just as wages, dividends and interest are. The sum less taxes paid is the basis of discretionary income.

Are you sure capital gains are included? I've read many articles that say they are not. For instance:

Disposable personal income, as the Commerce Department measures it, currently does not include the capital gains that come to individuals when they sell stocks or other assets. There has been a long debate as to whether or not these gains are properly considered income, since they do not reflect any earnings from additional output but only changes in prices. We do not need to challenge the Commerce Department's definitions, which seek to portray the real changes in the economy. But in calculating the financial surplus available for investment, it is clearly a mistake to omit capital gains. Not only are capital gains a source of much business financing; during the 1980s, they reached unprecedented levels.

The Myth of a Savings Shortage

If you have a more recent source which backs up your assertion, I'd appreciate a link.

[ancient_geezer]

Sorry. Capital gains taxes paid are subtracted from income when determining savings.

That is what I said, personal savings is with respect to after tax income, (i.e. discretionary income.)

Are you sure capital gains are included?

No, looking over NIPA tables it does not appear to be included in disposable income.

Seeing that most of such sales are largely re-invested in like instruments it is not clear that one could reasonable include such as income as much as it would represent appreciation of old assets. Certainly it is not classifiable as current production income in the GDP sense. So you are probably correct.

Savings under NIPA measure appears to best be defined as that which is left after taxes and consumption out of current production income.

[pigdog]

Most taxpayers will benefit from an increase in purchasing power.

Under the FairTax, income - no matter from what source - is not taxed. Only consumption is taxed and used (already taxed) things are not taxed again. This puts the amount of tax you pay squarely under your control since you determine your own consumption.

To get one view of how pre-taxed savings could benefit, check this post.

Once again, your tax free income is still tax free. It's taxed only when you spend it for taxable things. And, don't forget, you also receive the prebate (unless you don't want it - it's optional).

Let's say you're married and that for 2006 you spent your entire $40,000 on taxable things. You'd have an effective FairTax rate of 11.73% since you'd have available a prebate of $4,508 to offset a good bit of your taxes. And with a little frugality you could do a good bit better while your tax-free investments continued to grow tax free.

And keep in mind, too, that if you spend the entire $40,000 under the present tax system, you'll pay tax in the form of hidden taxes that are embedded in everything you buy (whether new OR used).