Laurence Kotlikoff, Joseph Von Nessen and Doug Woodward.
There was good news and bad news today at USC’s 36th Annual Economic Conference.
To be more specific, there was mildly, moderately good news, and really Terrible, Horrible, No Good, Very Bad news.
I’ll start with the good, which is on the local level. USC economists Doug Woodward and Joseph Von Nessen said that while growth has sort of leveled off in South Carolina, we’re in for a fairly good 2017. Advanced manufacturing remains strong, and things are going really well in construction — particularly along the coast — and retail. Merchants should have a good Christmas. If there’s a concern, it’s that employers are now having trouble finding qualified employees, particularly ones who are up to the challenges of automation — humans who can work with robots, basically.
On the other hand, we’re basically doomed.
That’s the message I got from the conference’s keynote speaker, Laurence Kotlikoff of Boston University, who started out noting that few Americans seem to have a clue what a fiscal hole we’re really in. Political leaders don’t speak of it, he said, pausing to complain about the “content-free election season” we just experienced. (Of course, you’d expect him to be dissatisfied with that, since he actually ran for president — unsuccessfully, he added dryly.) Oh, sure, they might speak of the $20 trillion national debt — which he noted isn’t really that, since the Fed has bought back $5 or 6 trillion of it — but they ignore the bigger problem.
That’s the true Fiscal Gap, as he calls it, which includes the liabilities that have been kept off the books. You know, Social Security, Medicare and the like — liabilities that aren’t acknowledged in the federal budget, but which are obligations every bit as binding as if the future recipients held Treasury bonds.
That adds up to $206 trillion.
There’s more bad news.
If we think in terms of what it would take for the nation to deal with that liability, our government is currently 53 percent underfinanced. That means that to meet these obligations, we’d have to have 53 percent across-the-board tax increases.
It gets worse.
If we don’t raise taxes by 53 percent now (or make drastic cuts to current and future spending that might somewhat reduce that need), then they’ll have to be raised a lot more on our children and grandchildren.
Dr. Kotlikoff has been raising the alarm about this for years. Here’s an oped piece he wrote for The New York Times in 2014. As he concluded that piece:
What we confront is not just an economics problem. It’s a moral issue. Will we continue to hide most of the bills we are bequeathing our children? Or will we, at long last, systematically measure all the bills and set about reducing them?
For now, we blithely sail on. But prospects aren’t good. None of the three economists, who spoke at a press conference before the event, had anything good to say about incoming political leadership on the national level. In fact, quite a bit of concern was expressed about 3 a.m. Tweets, any one of which could trigger a trade war with China before the day is out.
I came away feeling a bit like Damocles — or rather, like the nation is Damocles, since the sword fell on my head sometime back. And we just elected a guy who thinks he’s a national hero because he interfered with one business that was going to send some jobs out of the country (an interference in the market that none of the economists think was a good idea).
I’m not holding my breath for any leadership on closing the Fiscal Gap. (Nor would I be had the Democrats swept the elections.) Are you?
“What’s THAT hanging up there?” “Oh, that? I call it the Fiscal Gap…”
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Maybe Dr. Kotlikoff should have tried this…
End all social services now… “you’re on your own… the fittest shall survive… good luck”.
And if we’re broke, stop sending money to foreign countries for rebuilding from natural disasters. They aren’t sending us money when we have floods or earthquakes.
What do people expect when billionaires like POTUS elect pay zero in income tax. Brad if you had actually been doing your homework you’d appreciate just how much better the Democrats have done on this issue than the Republicans. They are the big spenders on military crap and wars that add trillions to VA obligations.
Just to, on the record, officially counter that… the military is, of course, the one expensive thing that is a chief, core responsibility of the federal government. It’s not “crap.”
I know I won’t change minds with that, but I felt it needed to be said….
I’d like to see a comment on these numbers from someone knowledgeable. These kinds of numbers have been distorted far too many times for partisan ends for me to immediately accept them.
At last, an honest and healthy response to the nonsense we have been fed about the budget numbers.
So far all we get is “Blame the Republicans” or “Blame Obama” or “Too many social welfare programs” or “the military budget is too large” or any other budget item that is your raison d’etre to go after.
I am with you on this one Lynn.
Well, Lynn, neither of the economists at the table disagreed with him.
After the presser, I said something to Doug Woodward about the gloom and doom from the guest speaker, and he seemed to endorse it wholeheartedly, saying he had wanted for years to bring in someone who would speak these uncomfortable truths authoritatively…
So, Brad. What would you do about this problem? Politicians (especially in S.C.) have been talking about the national debt as far back as I can remember, about 60 years.
Yep. And some, like Fritz Hollings, have tried to do something about it.
This should please Bud…
While there is plenty of blame to fling at both parties, the problem REALLY became untenable with the Reagan Revolution, which made it fashionable for Republicans to push the notion that we can have all the government we want without paying more in taxes for it. And voters came to believe them. You combine that with the fact that things like Social Security are NOT going away — neither party would touch THAT, or Medicare either — and it becomes impossible to solve the problem.
There are things we can do, but definitely will NOT do in the foreseeable future. I’ve sketched out a plan for saving Social Security. Doing one obvious, logical thing would almost do the job alone: Get rid of the income cap on paying the payroll tax. The cap makes NO kind of sense, unless you subscribe to the delusion that it’s not a tax, but a personal thing YOU pay for, and higher-income people don’t need it, so they don’t pay in as much of their income — which is ridiculous. It is (and has always been) something you pay a tax for, so that it’s available for people other than you, because it addresses a real social need. We decided as a nation that we didn’t want retired people starving, so we instituted this tax to pay for this program. So why on Earth would you limit the tax liability for the people most able to pay?
But in the twisty logic of politics, that won’t happen, especially with Republicans running every part of the government.
While that situation lasts, I don’t know WHAT we can do…
Back when I made well over the cap (which I CERTAINLY don’t do now), it was a nice thing to have. It sort of worked as a Christmas Club account for me: The last couple of months of the year my take-home pay went way up because I no longer had to pay the SS tax.
I enjoyed it. But I certainly didn’t need it, and the Social Security system DID. It was absurd.
“But I certainly didn’t need it, and the Social Security system DID”
You could have contributed that same extra money to charity with the same effect. Why didn’t you?
My charitable giving was built into my budget, I assure you. It still is, even though I have less to give.
I really don’t see, however, what that has to do with the fact that the Social Security System needed the money.
It didn’t. Everyone got what they were promised, didn’t they?
Social Security is a pyramid scheme, not a tax. If it requires more and more payers into the system to pay more and more money to support the recipients, it is doomed to fail. It’s a model that is doomed to fail. It can’t work unless you have an expanding base of workers (birth rates are way down from when S.S. started) and a population that doesn’t die as early as they did 50 years ago.
You want people who make more to pay more money to others and get nothing in return. That’s noble of you. Will your plan cost you a penny more? It would cost me thousands of dollars. Dollars I don’t just set on fire to light my cigar.
Maybe we could try creating a mindset that is focused on personal responsibility and savings instead of “well, the government will provide a safety net”. Everyone has more than 40 years to plan for retirement. If you are unskilled, unmotivated to do anything about that for 40 years, then accept the meager redistribution that keeps you tethered to the government.
Just give me one solution to the fiscal gap that will hit you in the wallet. How much more are YOU willing to contribute to the cause? I know you’re up for taking it from other people.
Doug, that’s just bizarre. Since I’ve suffered a setback in my life that keeps me below the cap level, suddenly I’m this thief who wants to do things with “other people’s money,” a phrase that may be the most obnoxious in the government-hating lexicon.
You really have no right to speak to me that way.
My position now is exactly the same as it was when I benefited from the cap, and will be the same if my income rises above it once again. It doesn’t have ANYTHING to do with whether it’s, in your formulation, “my” money or not. It’s about sound, rational policy.
And by the way, if we did away with the cap and I paid more in tax, it wouldn’t be MY money. It would become OUR money, because it was paid as a tax required by law. I would have no legal or moral claim upon it.
Oh, and the other thing I would do to make SS solvent is raise the retirement age, which would affect me whether I make more money or not.
Not that it matters one whit. Whether something affects me or not has ZERO impact on what I think it is a good policy idea. That’s the way it has always been, and will always be.
So do me a favor and get off your insulting, high libertarian horse…
It’s not more insulting than having an expectation that others should be forced to pay for the retirement of other people at a level you deem appropriate. The system’s broken not because “rich” people don’t pay enough. It’s broken because it is a model that cannot work.
Why don’t you suggest instead that we raise the social security tax on EVERYONE plus remove the cap? Then it truly would be OUR money. The whole notion that taxes are “OUR” money is so horrifying to me. It’s a mindset that I could never grasp in a million years. I don’t work for the government — it just feels like it when 40% of my income is taken.
Or instead we could develop a retirement system based on savings instead of redistribution with a much smaller percentage allocated to the truly needy.
I just get so tired of people presenting solutions that are based on somebody else doing more. And nearly every solution you propose is centered around higher taxes: gas taxes, property taxes, social security, etc. That’s the easiest solution when your mindset is that everyone money belongs to some big pot we all share equally.
I gotta take up for Brad here. We’re trying to have a civil discussion about the nations debt. It’s totally out of line to launch such an uncalled for ad hominem attack.
Thanks, Bud…
Some ideas:
Cut the military and save now and on future VA benefits
Impose a 90% inheritance tax on estates worth more than $5,000,000
Eliminate SS tax cap.
Initiate a federal component to property taxes.
Impose a luxury tax on imported luxury goods like caviar and diamonds.
Eliminate federal insurance subsidies for luxury beach communities
Tax stock market transactions
Raise the capital gains tax
None of these will impose an undue burden on people who actually earn a living
I don’t know that I would do ANY of those things except eliminate the irrational SS tax cap.
I certainly wouldn’t do the first two. Y’all know I think the first one would be grossly irresponsible, but I object strongly to the confiscatory estate tax that bud proposes as well.
I don’t have a fortune to leave my children, but if I did have, I think it would be grotesque for me not to be able to leave it to my kids.
So, say I’ve worked my whole life to build a business (suspend your disbelief and TRY). If it’s even moderately successful, it would most likely exceed Bud’s $5 million. So my children would have to SELL it to pay the taxes — sell it to strangers who couldn’t care less about the values I had in building that business? And to put it more in terms Bud might understand, it would also mean selling to someone who doesn’t give a rip about the employees who depend on my business for their livelihoods — people who I might have cared for greatly for many years, whose fates would most likely be of great importance to me.
I think that would be an outrage…
The 90% tax would only be on very large estates. And of course it would be a tax on the margin. A $6 million estate would only have a $900k burden.
Scenario: A family farm in the midwest (average farm is around 2500 acres total), land is appraised at $1000/acre. Farmer dies, son inherits the land which is appraised at $2.5 million. Do you expect the son to be hit with a $2.25 million tax bill (90%) or let’s say $1.25 million for a modest 50% inheritance tax for no more than taking over the family farm? What about a store owner’s son in Columbia? $2.5 million in buildings and inventory isn’t much. You know how the majority of these sons would have to pay for their inheritance tax… auction sale.
Not all big business owners care about their workers so that’s really a non sequitor.
Well, I would. And I think it would be a scandal for my theoretical business to be sold off, maybe to some stranger who wanted to fire everybody and sell off the assets, because my kids had to pay a 90 percent tax…
Yeah, but using his logic, your heirs “got lucky” and had money fall in their lap… they didn’t earn it so it’s fair game to take away from them.
I hope all your proposed ideas won’t hurt your pocketbook too badly, bud.
I don’t mind doing my share. I just don’t want to do mine AND Donald Trumps.
I’m willing to bet Donald Trump has paid more in taxes in a year than everyone here will in a lifetime.
I certainly hope so. It would be a gross injustice if he hasn’t.
I’d be careful about betting on it, though, since he won’t release his records…
Where have y’all been. It’s been largely proven that Trump paid $0 in income taxes for at least 18 years. And yes that is a gross injustice.
What did he pay 19 years ago then?
He has used a loophole used by others in his income bracket, what he did isn’t illegal, it’s actually smart. Just like you probably use every deduction available to you.
How about we cut welfare programs for people who refuse to work yet are able bodied? 90% of social welfare could be eliminated.
Inheritance tax is nothing more than double taxation. The income and property has already been taxed at least once.
SS tax cap would only mean those who earn above the maximum contribution would also need to be paid out above the current maximum benefit. You can’t tax someone on $5 million income and expect them to get $12,000/yr. in SS when it’s likely they paid in $350,000/yr.
What institutes “luxury”? Does a well driller who uses diamond tipped bits get hit with your diamond tax? A bait salesman sells fish eggs as bait, caviar is fish eggs.
Federal insurance subsidies for anything need to be eliminated.
Why would you tax stock market transactions? Would you buying gasoline impose a tax for the transaction? Gasoline is a commodity, you’re completing a financial transaction by buying a commodity.
Do away with capital gains tax, it’s income.
Claus, I suspect you’d be shocked to find how little money you’d save even if you completely eliminated “welfare programs for people who refuse to work yet are able bodied.”
Okay, if it’s not enough… cut it entirely. That’s what churches are for… to provide for those who can’t provide for themselves. One would be surprised how much a person can actually do when they or their family get hungry. Why I bet some could work more than one job if need be. But why do that when you can sit on the couch and get a check from Uncle Sam.
In fact, that’s not what churches are for. In fact, churches are not for ANYTHING under our system of government. Government can’t go, “Hey churches, you do this.” The First Amendment bars that.
You know, I’ve been hearing this stuff since the Reagan administration, and it amazes me how some people continue, after all this time, to believe there are people out there on Easy Street, kicking back and relaxing because of government checks.
Hey, I was on unemployment briefly. The checks are so unbelievably tiny that no one could live on them. Besides, I only got a check (which I assure you I had far more than paid for through taxes over the years) a couple of times, because if you made ANY money at all in a given week — for me, that meant some tiny freelance job that took me a couple of hours — I got no unemployment.
Which seemed pretty stupid, really. To a lot of people that rule — that anything you made was subtracted from your tiny check, and if you made a couple of hundred dollars you got NO check — would be a disincentive to go out and do some part-time work. It wasn’t for ME, because anything I did brought me more money than the check. But to someone with fewer skills, why spend a shift flipping burgers when you could spend that time hunting for a real, full-time job and still get your check?…
Then let churchs pay taxes. f
I know a guy, who is nothing more than a single male drug dealer. He gets $200/month on his EBT card. That’s about what I spend in groceries. He uses his to buy stuff he can pawn off for 10 cents on the dollar and spend what he makes on drugs.
Maybe I should just let him be my personal shopper… that’s an idea.
You got an unemployment compensation check, not an EBT card.
That’s why unemployment has a lifetime, after x-many weeks it goes away. EBT, housing assistance, heating assistance, and God knows what else those people can apply for adds up and it appears to have no limit to how long they can receive it. I thought it was written a few years ago that welfare payments had a 3 year limit and then they went away… maybe is was a dream, a good dream.
That should be “drug user”, not “drug dealer”.
Yep. The Snap program is not very big at all. The Republicans are eyeing the coal miners medical program. They likely will be shamed into funding it but damn they stress people out for no good reason.
And Brad to address your point if this really is a crises we are all going to have to make serious saccrafices. Inherited wealth really is a privilege that not everyone gets to enjoy.
Based on what information I have been able to gather on taxes paid by the wealthy, they hire tax lawyers and high priced accountants to find every single deduction and loophole they can find to avoid paying one extra dollar they don’t have to. Unless it has been settled, Warren Buffett is still fighting an $8 million tax bill and this guy is worth billions. How much would it hurt for him to write a check for $8 million? The man could probably write a check and bounce the bank it was written on. And most other multi-millionaires and billionaires find offshore banks to deposit their money to avoid paying taxes. This applies to Republicans and Democrats who fit the category.
How much do you suppose George Soros pays in taxes to the IRS? Based on an MSN and Bloomberg article, he could face a tax bill of $6.7 billion come 2017. This is based on a law passed in 2008 closing a loophole where hedge fund managers were allowed to defer taxes on fees paid by clients and reinvest them in their funds, where they continued to grow tax-free. Prior to the bill passing, Soros transferred funds to Ireland to avoid the pending penalties. Wouldn’t one think that someone who supports higher taxes would do his or her duty and pay what is due and not be a total and complete hypocrite? And this is just one example of a billionaire whose estimated worth exceeds $33 billion and one who believes the wealthy should pay more taxes.
I pointed out two Democrats but I don’t forget the Republicans who use the same tactics to avoid paying their fair share either. Just pointing out that Donald Trump is not alone and if he is going to be called out on paying taxes, then anyone who contributes to or engages in a Super Pac endeavor should be held just as accountable. Fair is fair no matter who he or she may be or how one feels about an individual.
Doug pays a 40% rate according to his comments. Just how much of a increase in revenue would the IRS coffers realize if every millionaire and billionaire paid their taxes at the same rate as Doug does?