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October 16, 2015

Comments

The $30B in debt isn't that big a deal, because as the bonds mature, they reduce the debt, allowing them to be re-issued below the ceiling. There's obviously a timing problem (you have to pay the bondholder before the rollover can occur), but I think that just means that you pay the bonds first, out of your incoming revenue stream, deferring non-debt payments until you've made the debt payments.

The real problem is still the IT problem. Shutting down the various payment systems in the right order--and then turning them back on--is almost impossible.

I'm still assuming that everybody's slightly less crazy when the cameras aren't rolling, but then I assumed that they'd have been able to elect a Speaker in good order, too.

The federal pension I am due goes into processing on November 3.

It looks like I'll have to dip into savings to buy weapons and ammo.

I think it depends on just how the Treasuries in question are set up. If they are just "pay when mature", the rolling them over should be possible. But if they require interest payment at intervals before they mature, rolling over is not an option.

Unfortunately, I don't know just which kind the report I was reading, Debt Limit Analysis, is referring to.

This is one time I'm glad my lifelong Republican, Alzheimer's-ridden mother is no longer cogent enough to understand her SS checks and medicare payments will cease arriving.

President Obama needs to declare martial law and order the arrest and execution of Republican leaders, Congressional members and Republican media f*cks cheering this debacle on.

Subhuman, sadistic vermin filth.

Their children too.

Now Count, you know better than to blame the children for the sins of their parents.

wj @here--

Good point on the maturities--I forgot that not everything is zeros. Looks like average duration was 60 months in June 2015 (Table FD-5). So, naively (don't know if the duration is weighted by number of each type of outstanding bond or not), you could roll over only half a billion.

Never mind!

wj,

why can't the SSA just sell some bonds from the trust fund to meet the november 10 benefits payment?

If I've understood correctly, SSA holds, and is required to hold, it's trust funds in special bonds. When they are needed to pay benefits, the Treasury redeems them -- i.e. pays money to SSA for them. But, apparently, these are "non-marketable" securities. That is, they cannot be sold to anyone but the Treasury.

And therein lies the problem. SSA needs to have the Treasury redeem the bonds, so they can send out the benefit payments. But the Treasury will have no money with which to redeem them.

http://finance.yahoo.com/news/house-gop-hatches-harebrained-debt-220800616.html

Bullets over sense.

And therein lies the problem.

WRT SS, I see the problem this way.

For 30 years, working people have been paying in at a rate greater than outflows. The treasury bought the surplus, with the promise to repay it when the predictable actuarial reality made it necessary.

That time has arrived. However, Treasury can't pay, because nobody wants to pony up.

Everybody who has worked for a living for the last 30 years should consider themselves rogered. Because, they have been rogered.

If you borrow money, you gotta pay it back.

And therein lies the problem. SSA needs to have the Treasury redeem the bonds, so they can send out the benefit payments. But the Treasury will have no money with which to redeem them.

Why couldn't the Treasury just give them to the Fed, and the fed could then just credit the government cash account? The Fed could hold them as a asset, just like they are holding "assets" under the quantitative easing program?

If I have understood correctly, the Department of the Treasury, and only the Treasury, can buy the Social Security Trust Fund's special bonds. That is, the Fed is not, legally, allowed to buy them either, because it is not the Department of the Treasury.

In short, the Fed can just create money to/by buying other kinds of bonds, thus putting more money into the overall economy. But not this kind of bonds.

From what I could find, the bonds are held by the Treasury on behalf of the Trust Funds. So they already have them. So I am thinking of a collateralization, not a sale.

In theory, the Fed could hold them forever.

wj,

I'm just kicking the tires here....info on the actual nuts and bolts of the mechanics to redeem these bonds is a bit elusive.

TRM,

A quibble: maturity and duration are different things. Table FD5 gives maturity.

I don't think it helps at all to selectively pay certain obligations. All that does is say that Congress considers itself free to pick and choose what to pay, subject to the political winds of the moment.

That doesn't inspire confidence even if you are one of the lucky ones who gets paid this time. What about next time, which is what you have to consider when lending money?

These House Republicans really are fools, and dangerous ones.

Byomtov, it appears that the alternative being considered is to simply wait until enough income has accumulated to cover a particular set of bills. Which might be a good idea for something like Social Security payments, since otherwise someone has to pick which individuals (or, perhaps, individuals in which Congressional districts) get paid and which do not. Imagine the political implications of that!

The GOPsters even thought about a bill that would put this kind of selectivity into written law. It became known as the 'pay China first bill' because it made the priorities clear: first the foreign obligations, the social programs last. Iirc this was also intended to undermine the public trust in those programs even more, so privatization* would gain popularity.

*lat. privare = to take away, rob; in military context also: to plunder, devastate (bereave of use).

It was H.R.807, officially named the 'Full faith and Credit Act' and was passed by the House on May 9, 2013 (it never got through the senate).

Again in September, "on a party-line vote today [September 10], the [House Ways and Means] committee approved a copy-cat bill that would give Treasury the ability to borrow money to service bondholder debt and Social Security trust fund payments without raising the debt ceiling." -- Politico

As with the bill from the spring of 2013 Hartmut refers to, this bill is going nowhere. At best, it provides a talking point for when Social Security payments get missed.

Of course, this would essentially prioritize those payments ahead of others, such as salaries for federal workers, veterans’ benefits, etc. Somehow I doubt that failure to pay those, especially military salaries (the military being Federal workers) and veterans' benefits, would be great politics -- even if not quite as explosive as missing Social Security checks.

I keep coming back to this assessment of *Bill Clinton's* ill-considered attempt to provoke a Kurdish rebellion:

Moreover, if [Clinton's] covert operation had succeeded, its net result would have been a weak Iraq. Most experts agree that Iran, not Iraq, is the most significant potential threat in the region. One reason the objectives of Desert Storm were limited to liberating Kuwait was that U.S. leaders believed we needed a viable Iraq to counterbalance Iran. If we turned Sadam into the "Mayor of Baghdad," we would have created a power vacuum in the region. Dealing with Iran would have been more difficult than ever.

How weak might have Iraq become following a successful covert operation to destabilize Sadam's hold on power? Recall Afghanistan, where the CIA supported the mujahideen for almost a decade. Witness the moonscape that currently passes for Kabul, and you will see that even "successful" covert actions of this magnitude are impossible to plan with precision, and often end as horrible, bloody affairs. (141)

[Berkowitz, Bruce D. and Allan E. Goodman Best Truth: Intelligence in the Information Age. Yale UP (2000)]

Note the date of publication.

That's not hindsight; that's foresight.

Wrong thread, dangit!

wj,

it appears that the alternative being considered is to simply wait until enough income has accumulated to cover a particular set of bills.

That sounds worse. As long as you are in deficit the wait is going to get longer and longer, and the political pressure to change the priorities will grow, and the country's credit will still decline, because no one will be sure how long they will have to wait to be paid. And how are you going to ever hire anyone?

It's insane.

Byomtov, All of the alternatives being considered are insane. But those who refuse to agree to raising the debt ceiling don't care. Their ideology demands that they take the stance that they do. The fact that it would massively damage the country, the economy, and the incomes of their constituents -- all irrelevant details.

What they actually want, as near as I can tell, is precisely to damage (better yet destroy) the government. No matter what the cost. Because only that way can they start over and achieve their vision for the world. It wouldn't work, but again the real world is irrelevant to their ideology-driven vision.

From a European perspective, you're all completely nuts.

On the other hand, I come from a nation where a radio ventriloquist once had an audience exceeding 15 million people...
https://en.m.wikipedia.org/wiki/Archie_Andrews_(puppet)

Hey, we had one of those too

https://en.wikipedia.org/wiki/Edgar_Bergen

"From a European perspective, you're all completely nuts."

I'm beginning to doubt your UK creds, Nigel, because the proper term should be "barking mad".

wj,

I understand that all the proposals are insane. What puzzles me is why the proponents don't understand that. Are they hopelessly stupid, hopelessly destructive, what?

I doubt that a default would even accomplish what you say they hope for. It would simply be something between a very bad problem and a catastrophe. But it wouldn't destroy the government.

What I think is really going on is that those refusing to raise the ceiling think they are incredibly clever, and have discovered a wondrous strategy to get what they want. Same thing with shutdowns, endless repeals, and so on. Idiots.

"Are they hopelessly stupid, hopelessly destructive, what?"

Three doors:

Door #1: Yes, Hopelessly Stupid

Door #2: Yes, Hopelessly Destructive, Malevolent, Sadistic, Haters of the First Water, but ever so sincere, and it's the sincere ones, like ISIS, for example, that you need to watch.

Door #3: What? I think "What?" is What is going to happen to them, and it's not going to be an election.

Are they hopelessly stupid, hopelessly destructive, what?

Some of them are, indeed, hopelessly stupid. And some are hopelessly destructive -- as in they believe that destruction is necessary in order to save the world.

But most are simply hopelessly fanatic: true believers. That is, there is something that they believe in. Any fact which contradict it, anybody pointing out the totally predictable negative consequences of their belief, just gets ignored. One might even say, religiously ignored.

Think of it as determinedly closed minded. They aren't stupid, they just refuse to believe anything which would require them to think differently. They could think, but decline to (a problem I have seen before in politicians). They aren't (necessarily) destructive, they just refuse to believe that anything negative could happen as a result of their beliefs being implemented -- even abruptly.

True believers in what?

"True believers in what?"

True believers that the fiscal structure of the US government is hopelessly bloated and corrupt, and can only be rectified by massive destruction, followed by a return to "gold-based" currency. Or perhaps giant stone wheels, I forget.

Yes, I oversimplify, but their program is not exactly 'nuanced'.

True believers in their particular political/economic philosophy. An unlikely (at least to my mind) combination of fundamentalist Christianity, rabid capitalism, extreme libertarianism, and nativism. (Plus, I suspect, in my more suspicious moments, some of them blend in a hefty dose of straight racism.)

The combination leaves them believing that anything that gets done in Washington is, by definition, bad. And anything favored by President Obama is, also by definition, somewhere between a horrible leftist idea (notwithstanding the fact that Obama is actually, on any objective analysis, a center-right politician) and a direct attempt to deliberately destroy America. (Why he would want to do so is generally assumed to be too obvious to even discuss.) The combination, obviously, is flat-out synergistic.

http://finance.yahoo.com/news/lew-worry-could-debt-limit-110558741.html#

counting on the nihilist anti-democratic children to not destroy America's finances every 12 months seems like a shitty way to run a country.

heckof a job, GOP voters.

If their economic perscriptions are so great, why aren't they all moving to Kansas? Then they could live with the real-world results of an actual implementation.

The Savior wants to be crucified on HIS terms, not theirs:

http://www.washingtonmonthly.com/political-animal-a/2015_10/on_your_knees058181.php

This blue-eyed lover of Ayn Rand's purple- prosed instructional manuals for murdering the poor and the elderly (including his own younger self who inserted his parasitical proboscis into the nurturing bloodstream of Social Security survivor benefits, not to mention his many salaried and health-insured government positions on my dime since then, knows that there are perfectly legal, legit ways to carry out the genocide Rand relished without blowing up the 1 percent's bond and stock portfolios.

That this truly dangerous individual might save us temporarily from the John Birch cabal attempting their financial terrorism against the full faith and credit of the United States provides me no comfort.

Again, the President of the United States should be preparing to invoke martial law nationally the second the Treasury is forced into default.

Recall troops from abroad to help us defeat this act of domestic terrorism.

also, the GOP really needs to get its head out of 1999.

Their heads are farther up the wayback machine than that:

http://crookedtimber.org/2015/10/18/lockes-road-to-serfdom/

https://www.jacobinmag.com/2015/10/locke-classical-liberalism-treatise-nozick-constitution/

Once immigration is halted, they will have American workers under Locke and key.

So, what are the awesome, principled, far-sighted, wise, benevolent and so on Democrats doing to save the country from those f'ing motherf'ers?

BTW, on whose watch were SS taxes relegated to the general fund?

Russell said:

For 30 years, working people have been paying in at a rate greater than outflows. The treasury bought the surplus, with the promise to repay it when the predictable actuarial reality made it necessary.

That time has arrived. However, Treasury can't pay, because nobody wants to pony up.

Everybody who has worked for a living for the last 30 years should consider themselves rogered. Because, they have been rogered.

If you borrow money, you gotta pay it back.

I would tweak the above: Treasury can't pay because it doesn't have any money. It can only borrow more money.

Otherwise, what is the Democratic plan to pay back what has been borrowed AND meet all of the country's entitlement, etc obligations?

To find out what the Democrats' plans are (if any) it would be best to ask them. Although someone here may have checked it out.

But mostly what we can reasonably expect here is people giving
a) their personal proposals on how the country could/should deal with it
b) their personal plans for how they personally plan to deal with it.

Me, I figured out back when I first started paying into Social Security (early 1960s) that it was just another tax, and I shouldn't expect to ever see a dime back. So I save accordingly.

It actually seems like I may (in a couple of years) actually see some money back. Live and learn. But I'm covered anyway.

McT,

What f'ing MF's are you referring to?

And what exactly do you mean when you say SS taxes were "relegated to the general fund?"

Otherwise, what is the Democratic plan to pay back what has been borrowed AND meet all of the country's entitlement, etc obligations?

To the extent that existing revenue is inadequate to meet obligations incurred (which obligations were initially authorized by Congress, let's not forget) you can borrow more or raise taxes. Simply refusing to pay is childish.

Simply refusing to pay is childish.

Especially, but by no means exclusively, among our politicians, acting childish is a core competency.

Bernie,

McTX dismisses the raise-taxes-to-pay-the-damn-bills option because he has told us his "marginal rate" is 49% already. I haven't figured out yet how that could actually be true, but it probably doesn't matter.

--TP

Otherwise, what is the Democratic plan to pay back what has been borrowed AND meet all of the country's entitlement, etc obligations?

I don't know what the (D) plan is.

My plan is to go back to Clinton tax regime, and look to reduce national debt over a 20 to 25 year period of time. Not overnight.

For SS I would raise the FICA wage cap. I don't know how much, I am not an actuary. And yes, I know that will raise taxes for higher earners. It will raise my taxes, personally.

The really scary piece of the entitlement picture is the medical side, not SS, so I, personally (not the (D)'s) would start moving toward single payer for basic health care. Private insurance as add-ons if you want Cadillac.

That, or a really systematic reform of the relationship of payer to payee. No, I don't have details, it's not my wheelhouse, it's just clear that what we do now is broken.

And yes, I realize that you pay a hell of a lot of taxes, and I'm sorry that that is so.

The FICA wage cap never made any sense.

Sorry, but it doesn't. I admit it was nice to have a little more take-home pay in the latter part of the year. But I just can't see the rationale for it.

But then, I don't understand the rationale behind setting a lower tax rate for capital gains either. Income is income.

The argument of "it will give more money to those who will invest it" only makes sense if you don't think about it hard. If it were true, after all, we should set the marginal tax rate for high incomes (from whatever source) at zero. That would also leave more money in the pockets of "those who would, in theory, invest it."

russell, to McKinney: And yes, I realize that you pay a hell of a lot of taxes, and I'm sorry that that is so.

It should be some consolation that the main reason for a large tax bill is a large income.

Now, if people in McKinney's income range were annoyed by the fact that the likes of Donald, Mitt, and Carly pay a smaller fraction of their (really large) incomes in taxes than hard-working lawyers do -- well, I could sympathize with that.

--TP

BTW, on whose watch were SS taxes relegated to the general fund?

Reagan's? But that does not matter. By law, they could go nowhere else. If all that extra revenue had been turned into cash and allowed to rot in the basement of the Treasury, the general fund would still have had to go out and borrow vast sums to pay for all the other goodies provided by the feds (defense, endless war, etc.).

Maybe, do nothing and grow out of it:

http://www.latimes.com/business/hiltzik/la-fi-mh-the-u-s-government-in-debt-20151019-column.html

If all that extra revenue had been turned into cash and allowed to rot in the basement of the Treasury, the general fund would still have had to go out and borrow vast sums to pay for all the other goodies provided by the feds (defense, endless war, etc.).

Of course.

Why this is so hard to understand baffles me. You have excess cash. You are going to invest it. One of your choices is Treasury bonds, and in this case the law requires you to invest in them and nothing else. If, instead, the Trust Fund had been allowed to buy private securities then the Treasury would have had tp borrow money elsewhere.

SS has held its assets in treasury bonds since day one.

And normally, when the Federal budget runs a deficit, Treasury sells bonds to finance the deficit, and they count the bonds as part of the Federal debt.

IIRC, the 'change' was to exclude the bonds that Treasury sells to the SS trust fund as 'Federal deficit financing': a purely imaginary accounting fiddle, to make the 'Federal deficit' look smaller.

Brought to you by the folks that value PR over reality, whenever someone figures out who should get the blame.

The FICA wage cap never made any sense.

Politically, it makes a good deal of sense. Insofar as benefits are capped, but contributions would not be, you get a situation where high income earners are more readily seen to be subsidizing low income earners (which they actually do, but whatever). This would put the program at political risk for being portrayed as a 'soak the rich' scheme rather than a program of social insurance.

You gotta' give credit where credit is due. The folks who put this thing together were political geniuses.

God bless you Frances Perkins.

So, what are the awesome, principled, far-sighted, wise, benevolent and so on Democrats doing to save the country from those f'ing motherf'ers?

Did someone write those things about the Democrats? How did I miss that?

Let's assume there is no plan to save the country from the segment of the GOP willing to burn it down. Does that somehow absolve the arsonists?

It's not a very high bar to say that the Democrats are better than the loons in the Freedom Caucus (or whatever they're calling themselves at any given moment), but it is very much the truth. Total effing chaos today isn't a good solution to potential long-term problems, even when other solutions may be lacking.

"We've found a small tumor, which may eventually kill you. Since we don't know exactly what to do about it just yet, we've decided to chop your head off and throw your body into a vat of acid.

It is a very aggressive approach, but what else is there?"

Where to begin?

First, me: 39.6 + 3.8 + 6 = 49.4.

Second, we are at the Clinton tax rates for the top marginal rate.

Third, cap gains are smart and necessary for truly capital assets, such as the profit realized one time and one time only from the sale of a business. The problem with cap gains today is that holding a security for 1 year and 1 day makes it a capital asset. Lower tax rates for capital put at risk encourages a reasonable degree of risk taking. We want that. We could and should have two cap gain rates: assets held 2-5 years taxed at 20% of gain and assets held more than 5 years taxed at 15%.

Fourth, uncapping FICA raises the marginal rate for self-employed people like me from 49 to 61%. That is BS.

Raising the FICA rate on middle wage earners is just raising their marginal rate. They don't get anything for it, not a higher pay back when they retire. You're just taking their money because they are outnumbered.

Fifth, it was under LBJ that the feds quit sequestering FICA. It made their spending look less irresponsible.

Sixth, I've never been angry with people who make their money off of capital gains paying cap gains rates. I don't envy the uber wealthy. I don't understand why that much money is necessary to a happy life, but I don't want to live in a country where one group gets to tell another group how much they can or cannot have.

Seventh, we are past Clinton level tax rates. We are borrowing like maniacs. Promises of free family leave, fee college, free this and free that fill the air. Something's gotta give. Take all of the uber wealthy's money tomorrow and you're still tits up. Plus, that's the end of the private sector in the US, so it isn't happening. The cow is pretty close to being out of milk. The Left, the Democrats, the Progressives, whatever name is appropriate is going to have to prioritize the benefits government will bestow.

Eighth, no one other than Russell has offered a plan. I get your general outline. Single payer is a beast that, once let loose, is never going back in its cage. Even relatively small countries like the UK and Canada are running huge single payer deficits. Health care is being rationed. We are 5-7 times the size of the UK. I don't think we can manage a system that large.

Health care is being rationed.

Counselor, pretty much everything is rationed (blog comments may be an exception. I am putting together a grant proposal on that). This is called "economics". Some things are rationed by market prices, other things, not so much.

I don't think we can manage a system that large.

I see no problem in that regard. Q.E.D.

Third, cap gains are smart and necessary for truly capital assets, such as the profit realized one time and one time only from the sale of a business.

If I were king, he said, channeling Burt Lahr, I would draw the line between capital gains / not capital gains at the point where your investment actually is an investment.

Net new capital to whatever it is you're investing in.

What falls outside of that line is something like me "investing" in Worldwide Widgets by virtue of purchasing WWW stock on the assumption that I will be able to sell it for more money later.

My doing that adds $0 to the pool of WWW's working capital.

Like McK, I don't get angry at people who live off of "capital gains" in the sense of return on money invested in equities or bonds.

I just don't know if all of those things qualify as capital investments.

Fifth, it was under LBJ that the feds quit sequestering FICA. It made their spending look less irresponsible.

Pure, unadulterated crap.

More.

uncapping FICA raises the marginal rate for self-employed people like me from 49 to 61%. That is BS.

Because, after all, it hurts your ability to support yourself and your family so much more than the (lower) rate paid by someone working a minimum wage job.

Sorry, but you just aren't going to get much sympathy on that one. At least from anyone who looks at actual after tax income, rather than percentages.

We are borrowing like maniacs.

Who is? The 2014 deficit was about 2.8% of GDP, which is utterly unremarkable if you look at deficits/surpluses over the last 40 years or so. And it's projected to be 2.7% for 2015.

See here.

The accumulated debt is the big number in the sky we're all told spells doom, but nothing ever happens over it (except self-imposed congressional tantrums).

"deficits don't matter"

someone said that.

Raising the FICA rate on middle wage earners is just raising their marginal rate. They don't get anything for it, not a higher pay back when they retire. You're just taking their money because they are outnumbered.

I completely agree that it is just raising the tax rate. See my previous note about seeing FICA as just another tax.

But no, we are not just taking their money because they are outnumbered. Rather, because they actually have money -- and, increasingly, it's a bigger percentage of the money than it was.

First, me: 39.6 + 3.8 + 6 = 49.4.

What do the "3.8" and "6" terms represent?

Also:

Second, we are at the Clinton tax rates for the top marginal rate.

Correct. They kick in at a higher number, but in constant dollars it's actually about the same.

Back to the drawing board.

As far as FICA income cap, I would assume that if we totally removed the cap, we would also adjust the rate DOWN.

But basically I think removing the cap completely is a political non-starter.

Right now it's (I think) $118,500. If you made it even something like $150K (which is not likely), the maximum increase out of pocket would be not quite $2K, if my math is right ($32K x .062).

Which, I think, falls in the category of "sucks", but not quite in the category of "grab the pitchforks".

Double that for self-employeds, which I think is where McK gets bit.

I will point out that we recently went through the exercise of lowering the rate, then raising it back again, and I don't think most folks noticed unless it was pointed out to them.

And not to put too fine a point on it, but the money is actually owed to all of the folks who have paid into SS for the last 30 years at a rate greater than was needed to fund the program.

We don't walk away from other sovereign debt, we shouldn't walk away from that.

I do understand that single-payer plans elsewhere run in the red. The difference I see is that our total expenditure is much, much larger. Last I looked our per-capita public expenditure was not all that different from other OECD, but then we pay that much again from private money.

Health care here is rationed, the rationing is just done by private entities. If you have Cadillac coverage or a concierge deal, not so much, but most folks don't.

In any event, my real plan is the same as it always is: pay working people more.

Then they'll buy their own stuff, and won't need to ask for it from Uncle.

Promises of free family leave, fee college, free this and free that fill the air. Something's gotta give.

Nothing's free, including not providing these things. The question is what's better for the country (and even the economy) - providing these things or not? It's not a simple matter of "if we don't provide these things, we don't have to pay for the, therefore there's that much more money for other stuff." This isn't your household budget. The macro economy is a dynamic system with second-, third-, and who-knows-how-many-order effects.

Do you forego investing simply because you have to put out some amount of money to do so? If not, why not?

Promises of free family leave, fee college, free this and free that fill the air.

not exactly free: paid for by the country as a whole, because it benefits the country as a whole.

e pluribus something or other.

The top marginal personal tax rate in the United Kingdom is 45% on income over ~160,000 pounds. 40% on income over ~42,000 pounds. Just for comparison sake. They also have a 20% VAT.

There's plenty of room to raise taxes in the US.

If I were king, he said, channeling Burt Lahr, I would draw the line between capital gains / not capital gains at the point where your investment actually is an investment.

Net new capital to whatever it is you're investing in.

It's a fair point to note that buying GE isn't taking a huge risk. I happen to own some stocks that are very risky. The problem--and it is a big problem--is characterizing what is a capital vs a non-capital investment. If I buy a capital asset, or wish to raise capital by offering stock, the stock is worthless if, when sold, it loses its capital character. Ditto a capital asset. One person's gamble/risk is another's speculation.

Extending holding periods will go quite a way to making an asset "capital" instead of "short term". It would also hopefully be part of moving our private sector mentality away from our current fixation on quarterly performance. I don't mind having a so-so or even not so great year if two years hence, I'm going to have great year (unless WJ takes 60% of my hoped for great year, then screw it, I'm not going to bother).

Right now, everyone in the publicly traded sector builds for the next quarter, not the next decade. That's an overstatement, but the point's valid.

Because, after all, it hurts your ability to support yourself and your family so much more than the (lower) rate paid by someone working a minimum wage job.

I would hang it up before working as hard as I do to pay that much to the gov't. So would a lot of other people. 60% is confiscatory. I have a major issue with people who think they have the unlimited right to dictate what someone else ought to be allowed to keep out of what they earn.

The problem with conceding the principle of progressive tax brackets is that there are always those who want to "progress" right up to the point of confiscation. Being reasonable gets you nothing but getting screwed.

What do the "3.8" and "6" terms represent?

Medicare/Medicaid + ACA tax = 3.8

State Income Tax Imputed to me = 6

Nothing's free, including not providing these things. The question is what's better for the country (and even the economy) - providing these things or not?

Then there is no limit on what we should be giving ourselves.

Who is? The 2014 deficit was about 2.8% of GDP, which is utterly unremarkable if you look at deficits/surpluses over the last 40 years or so. And it's projected to be 2.7% for 2015.

We owe 13.2 trillion, and the 2015 deficit is 426 Billion. Less than in past years, but so what? We continue to borrow; we aren't paying anything back. The cumulative load is unsustainable.

I'm not much interested in percentages of GNP. That is a one year snap shot using a misleadingly small number (2.8) as a dodge for not acknowledging the actual numbers.

There's plenty of room to raise taxes in the US.

Sure there is. And the economy will boom!

Sure there is. And the economy will boom!

conservatives haven't earned the right to mock anybody else's economic plans. even when they've tried maximal versions of their ideology, they've failed to do anything they promised (except to lower taxes, of course).

Then there is no limit on what we should be giving ourselves.

How do you figure? What I'm saying is that providing things, via the government, is a question of whether or not doing so is worthwhile (i.e. it's better than not doing so). I don't think that suggests fiscal nihilism. I would be against filling everyone's mouths with gold teeth, for instance.

Cleek, are you talking about Kansas? Or is there another example of implementing the conservative plan for the economy that is even worse?

Kansas, indeed.

I'm not much interested in percentages of GNP. That is a one year snap shot using a misleadingly small number (2.8) as a dodge for not acknowledging the actual numbers.

Yes, because raw numbers are so much more informative. It doesn't matter that my grandfather's weekly wages in 1940 wouldn't buy the two of us lunch in a reasonably nice restaurant today or that there are two and half times as many people living in the country now. It all apples to apples with raw numbers. That's the best way to analyze something meaningfully.

In any event, my real plan is the same as it always is: pay working people more.

Yup. Rubber, meet road. If you set up a system with rules, regulations, and social mores that funnels most of the claims on future resources to a select portion of the population, well, that is "giving" just as much as "welfare" is.

"First, me: 39.6 + 3.8 + 6 = 49.4."

"What do the "3.8" and "6" terms represent?"

I'm assuming the 3.8 is Medicare and the 6 is the employee's half of Social Security.

http://www.adp.com/tools-and-resources/adp-research-institute/insights/insight-item-detail.aspx?id=F5E4F8C7-0887-4C94-AFEB-21C7B25DD3BF

This doesn't include state income taxes, which are moot because Texas doesn't collect those, though I understand McTX pays state income tax in other states which collect a levy. But he pays sales and property taxes.

Also, McTX doesn't own his law firm any longer, so he, as an employee, doesn't pay the additional 6.2% of the employer's share of SS, though he did for many years, I gather.

Correct me if I'm wrong about that.

The three percentages add up to 49.4% of McKT's income. Except, can we "spell" marginal, kids?

Let's not muddy the waters with capital gains taxes.

Without taking anything away from McTX's tax grievances, the income tax number 39.6% is a marginal rate levied on whatever number of last dollars McTx earns. I think the 3.8% Medicare levy includes 2.9% on income up to a certain point and then an extra .9% is tacked on for income above that level.

Conversely, the SS is a marginal rate as well, but in reverse and in his favor compared to someone who earns less than the income cap, 6.2% up to @118.000 per individual employee annually --- zero on dollars earned above that.

I don't expect McTX's pain levels to be reduced by pointing out that 49.4% of his overall dollar income does NOT go to taxes at the federal level, but something less than that.

"Marginal" being the operative word here.

At any rate, thank you for your hard work and success, McKT.

I'd also like to thank myself and my ex-wife in this regard for our combined hard work and success - hers much more than mine, since I've worked in the private sector as well-- working for the Federal Government, since I realize that labor contribution by definition is considered mere theft by many and worthy of some of our betters spitting on the floor.

Not referring to McKT here.

My ex-wife retires in two weeks with a good pension, just in time for those payments to be halted when the debt limit goes kablooey.

She enjoys her scientific work so much that she's signed up to work in emeritus status for the Dept of Interior, so that she can finish a couple of projects promised to the taxpayers, who can then expectorate in return.

Emeritus -- meaning volunteer.

Marginal tax rate on that labor == 0% == so she's even on that deal.

To be clear. She's not complaining.

That's my job.

McT,

There's plenty of room to raise taxes in the US.

Sure there is. And the economy will boom!

Well, it did after the Clinton tax increase. Now, I'm not going to claim that the tax increase had much of anything to do with that, but I will point out, for the umpteenth time, that the GOP doomsayers had a fit, predicting all sorts of financial catastrophe. None of which happened. Go back and check out Gingrich's comments at the time.

I will further say that noting conservatives say about deficits and taxes etc. should be given credibility. These are the guys who kept telling us tax cuts would be self-financing, and create a huge boom, like in Kansas. And that austerity is the solution to a recession, and so on. So I'm not interested.

We continue to borrow; we aren't paying anything back. The cumulative load is unsustainable.

Talk to your friend W. Things were improving nicely on that front until he decided to blow things up for no reason.

I see I was corrected. McTX's 6% is state income tax, not SS.

"The problem with conceding the principle of progressive tax brackets is that there are always those who want to "progress" right up to the point of confiscation. Being reasonable gets you nothing but getting screwed."

Well, there's a lot of room between Eisenhower's 91% top bracket tax rate and today's 39.8%. Also dozens of intermediary higher rates all the way through the income scale.

Progressive screwing, we could call it. Not even Bernie Sanders wants to go back to 91%.

I concede that there are always those who want to regress right up to the point that no taxes will be collected under a Federal Income Tax rate, but at least those guys have radio shows.

Agree with McTX pretty much on capital gains holding periods.

I have no problem with confiscatory levels of taxation on annual income above, say, $5M (just off the top of my head), assuming anything above 50% would be considered confiscatory. (I don't know how much higher I'd go than that - probably not much.)

If the only reason someone wants to do something after that point is money, I'd prefer to discourage it. The ones who do any good for anyone else aren't in it for the money once you get up that high income-wise. They're trying to accomplish something worthwhile or rewarding for other reasons. (Greed isn't actually good, Gordon Gekko notwithstanding.)

Strictly speaking, people making over $5 million per year aren't doing it for the money per se. But some of them are doing it for the money as a status indicator.

That is, if I make $10 million a year and you only make $8 million, clearly I am better and deservedly have higher status than you. It's not the money itself -- I can't spend that much anyway. But it's what making that much says about me, in the circles in which I move. It means I am more important.

Note that this is seperate from the motivation of those folks who are doing a job that they love doing. Those include the guys like Warren Buffett, who keeps doing what he does because, for him, it's fun. (Note also that this occurs at far lower levels of income, too. I see it all the time among my peers in the IT industry.)

If somebody is pulling down over a a billion/year, a 98% marginal rate above that level is a necessary adjustment to the balance of the social order, not confiscation.

Context matters.

Also, McTX doesn't own his law firm any longer, so he, as an employee, doesn't pay the additional 6.2% of the employer's share of SS, though he did for many years, I gather.

Correct me if I'm wrong about that.

I am a partner, ergo an owner, ergo self-employed. I pay the full load. I did not include that in my marginal tax calculation or property or sales tax. Just income tax.

I don't expect McTX's pain levels to be reduced by pointing out that 49.4% of his overall dollar income does NOT go to taxes at the federal level, but something less than that.

My marginal federal rate, not including the 14K in self employment tax, is 43.4%.

I will further say that noting conservatives say about deficits and taxes etc. should be given credibility.

Deficits under Bush II, but before the Dems got congress weren't so bad. After, they got worse. I don't give either party high marks for managing government spending, W in particular. If that makes anyone feel any better.

Things were improving nicely on that front until he decided to blow things up for no reason.

While I understand the sentiment, sort of, you do recall, I hope, that there was an attack, a debate and a vote? Not like Clinton in Kosovo, not like Obama in Libya.

If the only reason someone wants to do something after that point is money, I'd prefer to discourage it. The ones who do any good for anyone else aren't in it for the money once you get up that high income-wise. They're trying to accomplish something worthwhile or rewarding for other reasons. (Greed isn't actually good, Gordon Gekko notwithstanding.)

Most of the uber rich I know--with several big exceptions--aren't my kind of people. I don't feel the need to express my displeasure by taking their money just because they have a lot of it.

That said, if we had a consensus that earned income in the US would be taxed at 35% up to 1mm, 40% up to 2mm, 45% at 3mm and capped at 50% at 4mm and above, and everyone would stick to the numbers, I'd sign off.

It's a fair point to note that buying GE isn't taking a huge risk.

If the point of raising the issue of risk is to argue for rewarding risk-taking via the tax code, I would disagree.

The reward for risk-taking in investment is generally built in via the pricing mechanism. Higher-risk stuff generally yields more if it succeeds.

If you're risk-averse, you don't buy that stuff. If you're not, you might.

Preferential tax treatment is not needed.

I can see providing tax incentives for people to make investments in productive enterprises. I.e., investments that actually create new capital for the enterprise to use.

Other than that, I don't see it. Let income be income.

To touch on other stuff:

Some of the things we're talking about providing "for free" are arguably investments. College tuition, notably. Investments are not the same thing as handouts.

The other thing that I can never understand is how countries, otherwise similar to us, that have legal, social, and economic regimes that are enormously more favorable to labor, still manage to be pretty prosperous.

Why aren't their economies going off the rails?

To my eye, the choices we (the US) make about these things are driven more by social and political motivations than by economic ones.

I don't feel the need to express my displeasure by taking their money just because they have a lot of it.

The question isn't one of how much money they have; it's one of how much they're pulling in during a given year. And it's not displeasure at their deciding they want to make however much so much as not caring if they decide to forego making more than N dollars in a given year because they don't think the after-tax income is worth it beyond that.

If someone doesn't want to make their $5,000,001st dollar, why should I care? It doesn't change my thinking on the marginal rate for that income. Someone at a lower marginal rate can go out and make that dollar if it's out there to be made.

Almost everyone pays taxes of some kind or another. It's pretty much unavoidable. I, myself, pay taxes. I'm okay with that, and not because I'm mad at myself for having some amount of accumulated or incoming money.

While I understand the sentiment, sort of, you do recall, I hope, that there was an attack, a debate and a vote? Not like Clinton in Kosovo, not like Obama in Libya.

Sorry I was unclear. I intended "blow things up" figuratively, to refer to the deficit, not literally, to refer to military operations.

My marginal federal rate, not including the 14K in self employment tax, is 43.4%.

This confuses me. The top marginal rate is 39.6%.

How do you get to 43.4%?

Also, regarding folks making nosebleed-level incomes, I'm fine with marginal rates in the neighborhood of 50% for folks making multiple millions of dollars per year.

If you make $5M / year, you are making $100,000 per week.

I'd also be fine with very high surcharges on extremely expensive luxury goods.

Multiple houses, cars and boats (not working boats) with six-figure-plus prices, private aircraft. Etc.

The founders did it, why can't we?

If someone doesn't want to make their $5,000,001st dollar, why should I care?

Yes.

This, I think, gets at the point. It's unlikely, or at least much less likely, that taxing somebody ~50% on their 5-million-and-first dollar is going to have any serious impact on the health of the economy as a whole.

People are unlikely to refuse to engage in productive work because they only get to keep 50 cents of the 5-million-plus-one dollar. At that point, they're doing it for other reasons.

Countme-In: Without taking anything away from McTX's tax grievances ...

... consider a self-employed MA resident with income just under the FICA cap. That person's marginal tax rate is:

28.0% Federal
12.6% FICA
02.9% Medicare
05.2% State
----------------
48.7% "all in marginal tax rate" on his 117,999th dollar.

Compare to McKinney's 49.4% "all in marginal tax rate" on (what has to be something like) his 406,751st dollar. An extra 0.7% (marginal) on an income almost 4X larger. Gawd! is McKinney getting screwed, or what?!

--TP

Here are deficits by percentages of GNP:

2000 2.3
2001 1.2
2002 -1.5
2003 -3.3
2004 -3.4
2005 -2.5
2006 -1.8
2007 -1.1
2008 -3.1
2009 -9.8
2010 -8.7
2011 -8.5
2012 -6.8
2013 -4.1
2014 -2.8


I can't believe I pulled that off.

This confuses me. The top marginal rate is 39.6%.

How do you get to 43.4%?

It's like putting the frog in the pot of warm water and slowly turning up the heat. You give the taxes a different name.

39.6 is the "income tax"
3.8 is Medicare/Medicaid/ACA
They add up to 43.4% of every marginal dollar.

I'd also be fine with very high surcharges on extremely expensive luxury goods.

Multiple houses, cars and boats (not working boats) with six-figure-plus prices, private aircraft. Etc.

They tried this on domestically produced yachts--wound up putting all the folks in the shipyards out of work and the ubers bought their yachts overseas. People with the kind of money to buy that stuff figure out how not to pay the penalty.

The realized tax income is de minimus and the cost of penalizing luxury goods usually outweighs what you take in. Let Al Gore have 10 houses--that's 9 more houses that the construction trades get to build. Why worry about that? Why care if someone flies around in a jet, or has a big boat? Hell, those are stimulative. The maintenance on jets and big boats is horrific. They are job creators. The more, the merrier.

Ideally, the ubers would buy a lot of stuff that has a high service/maintenance component. The tax code should encourage this.

39.6 is the "income tax"
3.8 is Medicare/Medicaid/ACA

OK I see where you're getting it.

Usually Medicare is lumped with SS, but if I understand correctly it's not capped, so you're putting it with income tax.

Hell, those are stimulative.

The relative stimulative value of .01% of the population buying million dollar boats, vs (for example) 10%, or 5%, or even 2% more of the population going to college, is an open question IMO.

Likewise, whether Al Gore builds 10 houses, or 100 people get to build one.

trickle down has had 35 years to demonstrate its effectiveness.

how much more time do we need to give it?

If you look at the last 40 years, the current deficit as a % of GDP looks even less remarkable.

1975-01-01 -3.15247
1976-01-01 -3.92693
1977-01-01 -2.57234
1978-01-01 -2.51146
1979-01-01 -1.54728
1980-01-01 -2.57921
1981-01-01 -2.45930
1982-01-01 -3.82592
1983-01-01 -5.71183
1984-01-01 -4.58750
1985-01-01 -4.88435
1986-01-01 -4.81955
1987-01-01 -3.07441
1988-01-01 -2.95431
1989-01-01 -2.69790
1990-01-01 -3.69650
1991-01-01 -4.36084
1992-01-01 -4.43963
1993-01-01 -3.70784
1994-01-01 -2.78002
1995-01-01 -2.13922
1996-01-01 -1.32628
1997-01-01 -0.25421
1998-01-01 0.76211
1999-01-01 1.30023
2000-01-01 2.29699
2001-01-01 1.20729
2002-01-01 -1.43710
2003-01-01 -3.28030
2004-01-01 -3.36237
2005-01-01 -2.43129
2006-01-01 -1.79116
2007-01-01 -1.11000
2008-01-01 -3.11547
2009-01-01 -9.79761
2010-01-01 -8.64968
2011-01-01 -8.37480
2012-01-01 -6.72821
2013-01-01 -4.07811
2014-01-01 -2.79340

The average over that time is -3.13480. Don't even go looking at the WWII numbers. That'll give you a ribonucleic-acid freak-out.

Compare to McKinney's 49.4% "all in marginal tax rate" on (what has to be something like) his 406,751st dollar. An extra 0.7% (marginal) on an income almost 4X larger. Gawd! is McKinney getting screwed, or what?!

I pay the same marginal rate at that level, including tax on income imputed from MA. Everyone who makes more than the FICA/Self Employment cap realizes the same degree of tax relief.

The delta comes when you get past the max level for FICA/self employment tax. Federal tax payers get a bit of a break until they hit the next tax bracket.

But, if you want to make the point that it could always be worse, I agree. It could. If you are making some ass-backwards point that it isn't far to charge the SE tax to people making 115k and not to people making 250K, that is a different thing altogether. You are not giving the 250K earner a better SS pay out.

It would be nice if we had a national consensus on max taxes and then lived within our means. That isn't going to happen. Flat taxers think 15% is magic, many Progressives would go past 50%. Too bad we can't find a middle ground and stick to it.

How much more time do we need to give it?

Until the trickling starts and then the Fed will raise interest rates and put a stop to that.

On further inspection, McKinney's sample over the last 15 years yields and even worse average of -3.56301.

Kudos to Barack Obama for finally righting the ship! ;^)

Usually Medicare is lumped with SS, but if I understand correctly it's not capped, so you're putting it with income tax.

It looks that way on a W-2, but the SS tax is separate from the Medicare/Medicaid/ACA.

The relative stimulative value of .01% of the population buying million dollar boats, vs (for example) 10%, or 5%, or even 2% more of the population going to college, is an open question IMO.

Likewise, whether Al Gore builds 10 houses, or 100 people get to build one.

It isn't a zero sum. If Ms Uber doesn't buy a yacht because of your surcharge, her money just sits around gathering capital gains. No one gets paid to build the yacht and college enrollment doesn't go up because she didn't buy the yacht. College enrollment might go up if a student's parent was making a living building yachts.

A 100 people don't get to build homes because Al only builds one home. There is room for all of the homes. Al's are more labor intensive, thus they put more people to work. Good for the economy. It's called consumption. It's what we want and need.

It's called consumption. It's what we want and need.

Only if we don't question the broader context in which we want and need them, but I get your point.

You are not giving the 250K earner a better SS pay out.

Perhaps my memory is failing. But I thought that SS was not designed as a retirement program -- which is what it would have to be for it to make a difference how much you put in.

Rather, it was designed as a program to keep old people from living in poverty. It probably would have been more reasonable, from an accounting perspective, to have just raised the tax rates and provided for a guaranteed minimumm income (for the elderly!). But I suppose it was easier to sell the way it is.

Of course, the way it is also contributed to the number of people who could have saved for their own retirement, but didn't. Because they figured to retire on Social Security -- usually with no real awareness of just how little that would amount to, compared to what they are accustomed to living on.

You are not giving the 250K earner a better SS pay out.

a 250K earner makes more than enough money to set aside for a very comfortable retirement.

but, should Mrs 250K earner invest and then lose all her savings the next time the banksters feel lucky, she will still be kept out of abject poverty in her retirement, just like everybody else.

the safety net works for everyone.

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