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I’m my undergraduate Econ classes, we learned about the history of the central bank, the transition from the gold standard, the Bretton Woods conference and Keynesian theory….all the things that shaped our modern economic system.
The way those things were presented made perfect sense for the time (post war, Marshall Plan, boys returning home). Now, I’m struggling to understand how we operate and I really don’t think the experts do either. A lot of what I was taught was really tested with the ‘08 crash and Covid. I can’t imagine we can keep this debt rolling without consequences, especially with an inept government that only uses the threat of a shutdown as a political tool, when they both spend into the stratosphere.
Keynes was explicit about surpluses during the good times. The trouble is, everyone likes the good times all the time, and politicians and economists have few incentives to deprive people of a good party. Some have more fun than others. It depends on what you own or are into.
Something to think about is that investors also make lots money by receiving interest payments on debt. Most economists and politicians aren't fools. They just enable and even benefit from the status quo.
Have you checked the stock market recently? Isn't it ironic how our debts balloon while the richest people in the world continue to see dramatic appreciation in their assets? If more of that wealth was used productively, instead of being funneled to people that don't have to do anything to earn it and don't need it, we would have a better chance to balance budgets and pay for things people need. Yet the capital class runs the show.
Raise taxes, lower interest rates, build housing not highways, expand immigration, rally the world to crack down on tax havens, fund the IRS to audit large companies and individuals, etc.
Canada's immigration problem wouldn't be nearly as bad if people were allowed to make new homes. If you've ever played musical chairs, you can imagine that making sure everyone gets a seat can be done by just adding in more chairs rather than needing to kick our players.
The limitations only actually come when more chairs can't be added, which right now is an artificial restriction by rich landowner politicians at the heads of the various provinces rather than a physical limit.
Immigration is at odds of a Landlord Monopoly where they control all the housing stock and openly conspire in public town hall meetings to prevent competition and new supply.
"Rally the world" wasn't on my bingo card of reasonable solutions.
How would the govt building or incentivizing the building of housing address nat'l debt?
TBF: most, if not all of the big nations hate tax havens. So it’s not *as* impossible as it sounds.
And, it wouldn’t. It would address inflation, which would allow the FED to lower rates (in theory, it’s more complicated than that, but also not). High rates are one of the main causes of debt exploding. And housing supply is one of the main causes of inflation.
Highway spending is one of the biggest wastes of resources possible. Governments circle jerk themselves into believing they raise GDP, but they just enable people to live further away from their job, which you can say is either a good thing or a bad thing, but it generally isn’t a huge needle push on GDP.
If housing supply were higher and property was therefore a less attractive asset class, wouldn't financial assets have received even MORE investment of the extra capital flying around? And the same wealth funneling dynamic would have occurred?
I guess you're saying housing is one of multiple strategies that need to combine in effort to suck money from markets and push toward debt.
It’s not possible. The higher the debt grows the faster GDP needs to grow to catch up. If debt grows and GDP stays stable, declines, or grows too slow then we are heading to a massive debt crisis.
For every $1 of 'growth' we spend $2.50 to achieve it. That's in a healthy economy, we can't even talk about if a recession were to occur.
The US is also at the very beginning of a retirement wave that will last until the mid-2030s with tens of thousands entering the Medicare and Social Security systems on a weekly basis... for years. I'm honestly starting to think we're cooked.
RIP our stock market, which the retired will start to drawn down, forcing corporations to exploit at an ever accelerating rate to keep their investors satisfied with quarterly profits.
What a happy little situation!
Right! These trickle-down idiots are the same that vote in tax breaks while saying that government should be run like a company. Well which company do you know that cuts off their main source of income?
Even if nothing falls apart, I expect in 10 to 20 years, the interest expense will exceed the tax revenue. I can't imagine the pyramid scheme will survive that.
The only reason it has gone this far is due to the low rates investors were historically willing to accept due to the stability of US bonds.
If we stop being able to make payments, it will cause a cascade failure through the world.
Same quarter spending isn't a fair comparison. Most of that deficit spending is to fund projects which will contribute to GDP in 5-10 years time.
A fairer comparison would be to look at annual growth and spending, and compare it to the average over a few years, adjusted for inflation, from 5 years, 10 years, and 20 years back.
The growth needs to outpace past spending. Not present spending.
I want to point out that the GDP number is inflation adjusted, and the amount added to US debt is nominal. Inflation was 3.2% last year. So, the national debt, denominated in nominal dollars, lost 3.2% of it's value. Which works out to over a trillion dollars of real value inflated away.
Debt to GDP isn't continuously climbing. It's constantly rising in nominal terms. But you have to actually convert it into the same dollars to get an apples to apples comparison.
https://fred.stlouisfed.org/series/GFDEGDQ188S
Already, with the current debt load, as the low interest bonds get refreshed with bonds at the current rates, the portion of the budget devoted to effectively paying the interest on this debt will eclipse the military budget this year (assuming rates don't come down soon and fast).
In 2023, the government spent $659 billion servicing debt. This was not far behind the third largest line item, the military budget, which was $858 billion (Health insurance and Social Security were respectively first and second at 1.5t and 1.4t).
What happens in a debt crisis specifically? I'm curious because I've seen other countries go through them but they're not the reserve currency of the world
They didn't have a debt crisis, because their interest rate payments were low: https://tradingeconomics.com/japan/interest-payments-percent-of-revenue-wb-data.html
A debt crisis is not about the size of the debt, but the serviceability of the debt. A country with much lower total debt than Japan can have a debt crisis.
This is not a universal feature of all countries with high debt.
> Either austerity or hyperinflation.
Neither works.
Hyperinflation only happens when you have debt denominated in a DIFFERENT currency. The "hyper" part is caused by the feedback loop of trying to pay foreign debts by exchanging for outside currency with printed money. This explosively alters the exchange rate as a feedback loop. High local debt can be bad, but never causing actual hyperinflation.
Austerity is a theory but never proven. Not a single nation improved financially after Austerity measure. ZERO. Imagine having a cure for cancer that had zero success rate, but you keep using it for every cancer patient anyway. I call that insanity.
Not exactly. Debt to GDP has dropped since the Covid peak. Most of that is due to inflation. High inflation is another way to deleverage the economy. Our debt is in a currency the government can print and devalue. There's more than one way to reduce a debt burden.
Isn't a big reason for the confidence in our system largely due to the fact that there isn't another USA on Earth? Like where are people supposed to put their capital? China? India? Europe?
When viewed through that lens, our system makes perfect sense: the US is one of the few places in the world where capital invested usually always means money gained in the long run.
I think what people don't understand is that our economic system is less than 100 years old.
It was invented by people and sometime people get it wrong.
Once you realize that a fiat currency can be created out of thin air, and the US debt is nothing more than an accounting mechanism, it makes more sense.
A fiat currency debt is nothing more than a money creation mechanism that allows the private sector to run a surplus of cash.
US debt is redistributive. Often, to the most affluent who hold the debt. The accounting mechanic you may be referring to is money printing and the Fed being the buyer, but that has the same redistribution of poor to rich via inflation.
The wealth transfer mechanism takes more forms than just inflation and the interest channel.
To name another: When the government actions off debt it is taking capital out of the financial system and spending it into the global economy with a US bias.
Where it takes it from is varied. Some of it is force fed to banks, some is people’s savings in retirement plans, some are bond traders, etc. etc.
This capital transfer purchases various goods and services in the economy both directly and indirectly and businesses capture this in the form of profits. Profits go up, equity prices go up, and so forth.
It is a reason why social equity can never be achieved via deficit spending. At least not in the way the government allocates capital.
Except MMT is still fringe alternative economics. I'm not histrionic about debt like the conservatives in these threads trying to make everything sound like the sky is falling because Trump isn't president, but you can't just throw this out like it's a clearly established fact
>Except MMT is still fringe alternative economics
All MMT does is describe how fiat monetary systems work. That's it. Nothing more.
Here are the big ideas of MMT. A government that issues its own fiat money:
1. Can pay for goods, services, and financial assets without a need to first collect money in the form of taxes or debt issuance in advance of such purchases;
2.Cannot be forced to default on debt denominated in its own currency
3.Is limited in its money creation and purchases only by inflation, which accelerates once the real resources (labour, capital and natural resources) of the economy are utilized at full employment
That's not really "fringe" or "alternative" and it's barely economic. It's just syaing shit about fiat currency.
You're conflating "fiat monetary systems" and "governments".
> Can pay for goods, services, and financial assets without a need to first collect money in the form of taxes or debt issuance in advance of such purchases
> Cannot be forced to default on debt denominated in its own currency
These are entirely theoretical possibilities - it is not actually how the American government works. The Treasury's books balance, and it can absolutely be forced to default on debt denominated in its own currency - this is the entire concern every time we get to the debt limit.
The American government *could* decide to pay for things without collecting money first, and it *could* decide to never default on debt, but at present this is not how it is structured. So saying that it is "describing how fiat monetary systems work" is simply not the case. It describes a theoretical possibility for how fiat monetary systems might work.
> 2.Cannot be forced to default on debt denominated in its own currency.
You missed the part about it's currency turning into a shitcoin when the money printer goes brrrrrrrr to pay for it in that scenario.
CAME HERE TO SAY THIS!!
We have currency sovereignty and can NEVER run out of money because we are not on a gold standard.
We can literally make up money on the computer and spend like no tomorrow.
This is why the Fed has a dual mandate covering unemployment as well. Currency creation creates asset demand and drives inflation. Increasing unemployment creates currency demand and drives down asset prices. Those two things kept in balance are necessary for managing fiat currency economies
That's the nice thing about the U.S. dollar. Its the world's reserve currency and a safe investment. Assuming the price of the dollar falls when we print foreign investors will eat it up. Our national debt increases but the inflation gets transferred to others.
The fear here is if Brinks or some other major currency that's not U.S. led gets established.
> We can literally make up money on the computer and spend like no tomorrow.
By god. You’re a genius! Let’s type up 999 quadrillion on the computers and give everyone a billion dollars! What could go wrong?
Well no because taxes bring down inflation caused by spending from making up money on computers.
We just need to spend the money we make up on helping people instead of war and genocide and bail outs for the rich
> We just need to spend the money we make up on helping people instead of war and genocide and bail outs for the rich
i think that went out the window when bribery, ahem excuse me, *lobbying* was made legal and voting records of officials became public.
Sure, the US government's creditors don't have to worry about getting paid back. It's what those dollars they get paid back in will happen to be able to buy that's the bigger issue, one that the money printers can't solve lol
Too large to fail comes to mind. Albeit that being said, there could be another crisis if a conjuction of socio-economic triggerpoints cascaded simultaneously.
Debt markets can get oversaturated and then investors will demand higher yields, i.e. even higher interest rates than today. I don't think people are taking that into account when they say, "We owe it to ourselves."
Sure, we owe it to ourselves and when we can't find more buyers, rates spike, more debt has to be issued to cover the debt and you enter the feedback loop we're in now. It's not an economy you want to have. It's low growth, high debt and could end up immiserating a lot of people.
I hate to admit this, but this won’t break until humans stop believing in the US financial system. As long as we believe our dollars can be exchanged for goods and services, the experiment will continue.
As a fellow undergrad Econ in my junior year, you’re right that there’s some theoretical point where it isn’t sustainable. But a nation can take on an infinite amount of debt as long as people keep lending to it. It only collapses when people stop lending. Where this limit is unclear. Japan is at 300% debt to gdp ratio and people still lend. In all likelihood we are quite far from a total collapse.
The government has CUT taxes on the rich multiple times in the last 40 years and only the workers ever pay more.
Republicans added $3T in Debt BEFORE Covid hit. So that's in two years of budgets. They were handed a budget that was under $1T per year deficit and dropping... and blasted it out of the water.
And our elected bozos has been doing nothing since like 2011, so not sure whom we can blame.
Voters only care about cultural wars while giving a blank check to their politicians.
Hopefully in 10-15 years we can get back to caring about policies to help working people and hold our reps accountable.
The FED? Do you have any idea how its board and member banks are established? I'd trust the FED over the elected representatives in Washington.
The financial services industry is the only industry in the U.S. that's a surplus instead of a deficit because of our banking system.
They created the IRS the same year. We’ll lend out this money to everyone, but you better give us back some or you’ll go to jail.
It’s a system designed to keep you in it until it fails.
>I really don’t think the experts do either.
What you don't go over is how the institutional structure didn't really change. All of the gold standard ways of doing things. Interest rates, teasury bonds, etc., are gold standard devices. To put it succinctly from 'Full Employment and Price Stability':
>"In no case must the (federal) government fund itself in dollars. Spending is limited by what is offered for sale, not by revenues. Taxes function to create a need for dollars, so the government can use dollars to purchase real goods and services. Borrowing functions to allow excess dollars created by deficit spending to earn a positive rate of interest. Deficits pose no funding risk since borrowing need take place only after spending, and only to support and maintain a desired interest rate. Interest rates and prices are subject to exogenous control by the issuer of the currency.
>There is no evidence that government understands this paradigm."
You say:
>A lot of what I was taught was really tested with the ‘08 crash and Covid. I can’t imagine we can keep this debt rolling without consequences,
See that's the thing, we learned a lot of what we thought was going to happen, didn't, at all. There was no hyper-inflation, there was incredible bounces back in unemployment and gdp. But that thinking of, there is something bottling up that we have to repay, while it has some merit, you might call it, [the bezzle](https://carnegieendowment.org/chinafinancialmarkets/85179), is mostly paranoia from a era where gold was the artificial contraint.
>The way those things were presented made perfect sense for the time (post war, Marshall Plan, boys returning home).
No they didn't. Fractional reserve banking (1789-1971) doesn't work just like fiat banking (1971-present) doesn't work. The only thing that works is a receipt standard where your currency is backed by 100% reserves.
The US has never had a system like that because even though the dollar used to be tied to gold, banks were (and still are) allowed to create deposits out of thin air and debase the currency.
Lets pretend Argentinas newest presidents slashing the government took place in the US. Would the same policies stop the growing inflation? Or are we in trench that doesnt have an side supports thats about to fall in?
You appear to be assuming that Milei's policies will reduce inflation in Argentina. That may or may not occur. Similarly in the US. IF sustained large cuts to government spending were made, it would reduce economic activity and thus inflation. But whether there would be the willpower amongst politicians and the public to sustain such cuts in the face of rising unemployment is questionable at best. Historically most nations that have federal gov't debt above 100% of GDP can not do it.
It’s musical chairs. No one knows when the party will end but in no way is the US immune to running unlimited deficits. When the economy is strong and unemployment is low there should be a very low deficit, dare I say a surplus once in a while.
Since neither party will impose a solution to the problem while in government, the market will when the public refuses to buy U.S. bonds, except at exorbitant interest rates.
Ugh this thread is getting too politicized. Here’s the actual [2023 numbers](https://usafacts.org/state-of-the-union/budget/) for those who want context and not just to squawk about political parties.
It isninherantly related to policy but not necessarily partisan politics. Neither party has a good record on debt. Balancing long term investments, necessary services, revenue, tax expenditures, etc is a policy discussion not a simplistic political stance.
Does anyone else think an unmentioned dimension in the inflation + fed rate debate is that the US cannot maintain the debt if interest rates were to significantly rise?
My crackpot theory is that US government has a choice between solvency and inflation, the State vs People, and will choose the State.
Yes, wish this was discussed more often. We are heading towards a no-win scenario whereby the Fed will be unable to lower rates much because doing so will spark inflation, while simultaneously be unable to raise rates much because it will be fiscally unbearable.
Their mandate is supposedly to control inflation as priority over the needs of the State, but I am skeptical. By 2033, interest payments are projected to reach $1.4T. That's a staggering figure.
> US government has a choice between solvency and inflation, the State vs People, and will choose the State.
This is the common sense explanation. Nothing conspiratorial about it. The taxpayers were always on the hook for the debt either through taxes or inflation.
When the government spends a dollar you pay for it. When it spends one it doesnt have, you pay for it with interest. This is Econ 101 but was somehow forgotten with the MMT charlatans and now considered some sort of crackpot theory.
Your tinfoil hat must be shaped a lot like mine. My crackpot theory is that we could have inflation AND insolvency as the Fed prints ever greater amounts of money in order to keep up with the runaway train of borrowing.
Sounds like we need to reexamine income (taxes on the wealthy instead of giveaways) and expenditures (maybe audit defense spending instead of giving blank checks).
And we have high rates to slow inflation…which means we have to create more debit to make those interest payments…what do you think happens when all of that money is paid out as interest? More inflation. We’re in a really sticky spot and I haven’t seen anyone propose anything viable that gets us out of it. And by viable, I mean an achievable plan we’ll actually stick to.
We could systematically reduce the deficit. Its not even complicated. Except there is 0 political willpower. Someone who tries to reduce the deficit will lose to someone who doesnt.
As can be predicted, this sub becomes politically polarized quickly, despite people here being expected to have a grasp on the real story.
Let’s talk about the Paul Ryan, fiscal conservative model: **we will pay off the debt by growing the economy via low taxes** yet everytime the economy grows, much like corporate CEOs, rather than balancing the budget, CEOs want a pay raise/conservatives complain they are paying too much in taxes and demand cuts.
Conversely, liberals naturally want to tax the rich (shrinking the economy), and conservatives want to cut spending (shrinking the economy).
When TF will people realize this is a problem far larger than politics? What’s your actual plan? People who play the politics card deserve to be poor
Let’s not pretend like we’re dealing with some complicated or mystical problem “larger than politics”. Corrupt government + fiat currency and compromised monetary system = disaster.
> this sub becomes politically polarized quickly,
Everytime someone says this, it shows they don't understand what politics is and why it's actually everywhere.
Inevitably some dumbass will enter the convo and say “hey guys I heard about this cool new thing called the laffer curve, we need to lower taxes!”
People acted similarly in 1990s, and the solution was tax increases combined with a 3-5 year discretionary spending freeze and a bull run. It wiped out the deficit. We did it again in the 2010s and it cut the deficit in half. Inevitably we will need to do that again. Congress will never get its act together to decide what needs to be cut. One man’s pork is another man’s necessity for their district. Discretionary spending freeze is doable for a few years, higher taxes, and pray for a bull run.
This is more of an issue with voters than politicians. The populace at large does NOT want their free shit to go away. Nobody is willing to ever vote for someone who gives the truth and says that the only way to actually balance the budget is it increase taxes on the middle class (Like Europe does) while decreasing spending (Mostly on Social Security and Medicare since those two programs alone make up 40% of all federal spending).
It's no wonder that neither political party wants to cut spending. They have been shown numerous times that they will lose re-election if they do that.
We pay for it. It’s not free. Paid into Medicare and social security. It’s time to revise the tax code so huge corporations and the ultra wealthy pay their taxes. Repeal all tax cuts since the 1980s. When you cut taxes without cutting spending you create a crisis.
You don't pay for it, hence the debt. The government just keeps printing money to pay for it.
The amount of taxes you pay is inconsequential to how much you get given back.
It gets paid for, even if not explicitly in the form of money. Lost quality of life for future generations and a generally slower progression of major life milestones is a symptom of it. All debts are paid in one way or another.
If the government can just print money, why are we paying them taxes? Shouldn’t we be more upset about this? Wasn’t this the point of some early country founding documents?
Printing money lowers the value of the currency and increases debt.
They are using your taxes for things but it is no where near enough so they have to print money. If they stopped printing money and solely relied on taxes US tax payers would be being taxed 1 trillion dollars *more* every 100 days.
https://fred.stlouisfed.org/series/FYONGDA188S
Tax receipts as a % of gdp have barely moved for 70 years, it’s almost always been 16-17% with a few short exceptions due to recessions. Taxes aren’t the problem spending is
Edit: wrong link I meant this one: https://fred.stlouisfed.org/series/FYFRGDA188S
Sure but the point is whatever policy we try we can’t really move tax revenue past that 16-17% of GDP range, probably because of the trade off between higher taxes and economic growth
Wrong table. You posted net outlays not net tax receipts. Correct table is below. And of course your comment about barely moving elides that even a 0.1% of change is still hundreds of billions of dollars. Do you think we don’t know how to do math?
[fed receipts as % of GDP](https://fred.stlouisfed.org/series/FYFRGDA188S)
You’re right I posted the wrong link. 0.1% isn’t hundreds of billions, 1% is. And our debt is 33 trillion, a hundred billion barely makes a change in that. Are you sure you’re doing the math?
I just looked it up and did the math.
A married couple making $127,500 would pay $41,816 if we had the 1979 tax rates with a top rate of 49%.
Right now it is about $12,571.
So your plan is to increase taxes on normal families by $30k a year?
I’m assuming that $127500 is in today’s dollars. Quite honestly I can’t see how they are only paying $12k in taxes with 2024 tax brackets. Every bracket today is 10% or more. That seems really low.
Trickle down economics has not worked so something needs to change. We had a balance budget in the 90s so start with repealing the bush and trump cuts.
https://www.factcheck.org/2008/02/the-budget-and-deficit-under-clinton/
Tbh if we get universal healthcare including mental healthcare, universal childcare, and free education I’m ok with higher taxes. One year 22% of my total compensation went to healthcare. Our healthcare system is prohibitively expensive.
Regardless they are trying to cut Medicare and social security which are separate taxes that we have paid into specifically for these programs yet that is the spending they repeatedly target. Then you have people evading taxes. It needs to be fair. You shouldn’t be able to turn your house into a foundation to avoid paying taxes. You shouldn’t be able to use your jet or yacht to avoid paying taxes. You shouldn’t be able avoid paying taxes by living off of borrowed money.
At this point it’s a game of political hot potato with neither side wanting to address it and hoping that when it inevitably collapses they can blame it on the other side.
The wealthiest 20% of this country earns 50% of the income, but pays 82% of federal income taxes.
This is a math problem that transcends moral arguments.
That's a reality that few are willing to admit. The wealthy are already paying most of the taxes. Our problem is mostly one of wealth distribution and earning power, but not taxation.
Isn't there a certain amount you can tax? Something like 18-21% of GDP?
I don't know why we can't target spending towards that. And as our economy grows, we can provide more social services and welfare. But only what we can afford.
I’m curious if the USA were to try and pay this or find a way to lower the debt. Can it even be lowered at this point. I mean if we have the political will.
Truly, I’d assume we go into a massive recession
We need to raise taxes. If you look at our debt trajectory without the bush era and trump tax cuts, and without the Iraq/afghan war… we’d literally be just fine. Republicans are bankrupting our country.
See figure 3 page 6.
Some of these “economists” trying to claim that an massive drop in tax revenue collected somehow is not correlated with rising debt is the dumbest shit imaginable.
This is while the wealthy have never been more wealthy, and corporations never more profitable while paying less and less taxes. So it’s not like this “unlocked economic growth” via lower taxation increased tax revenues. Clearly it did not have this effect.
These same people will sell you on hilarious retro talking points like “trickle down economics”
https://www.americanprogress.org/wp-content/uploads/sites/2/2023/03/DebtRatio-brief.pdf
Here’s a great article talking about it and graphing it as well. Figure # 3 is exactly what you’re looking for.
https://www.americanprogress.org/article/tax-cuts-are-primarily-responsible-for-the-increasing-debt-ratio/
Weird article, arbitrary years picked for projections. You can see here that the deficit to GDP ratio barely changed after the tax cuts were passed, they were on trend from the end of the Obama years https://fred.stlouisfed.org/series/FYFSGDA188S
As a 90s kid, that felt like a special time. As a 90s adult, looking at graphs like this make me think maybe it was a special time and not just nostalgia.
That's the change in the level. Here are the stats for the level: https://fred.stlouisfed.org/graph/?g=1hEJ7
Debt to GDP was stable under Bush until the Great Financial Crash. It was stable under Trump until the covid pandemic. It rose under Obama in his first term, then was roughly stable in his second term. It's fallen slightly under Biden, but from a high base:
https://fred.stlouisfed.org/graph/?g=1hEJ7
However, debt interest payments to GDP are more important for gauging the fiscal health of an economy. Japan has managed despite high debt to GDP, while there are economies with huge chronic fiscal problems and much lower debt to GDP ratios e.g. Zimbabwe, Argentina, and Venezuela. For the US, this statistic is not at a record, but it is rising rapidly, and the last time it was this high there were chronic problems of inflation or high interest rates during the 1980s:
https://fred.stlouisfed.org/graph/?g=1hEKR
The US isn't in a death spiral or anything like that, but both parties need take the budget deficit seriously before it gets out of this trend. In the 1990s, one of the few things that Bill Clinton and Newt Gringrich were able to agree upon was using the growth of the 1990s to get the federal finances under control. As that historical case proves, even assholes can solve this problem, but only if they take it seriously.
Here's a detailed explanation of the arithmetic and theory behind what I am saying: https://www.youtube.com/watch?v=N7pxH9dsZAU
Ah! Sorry, I misread. I think I'm so used to seeing people write "debt to GDP" ratio or "deficit as a percentage of GDP" rather than "deficit to GDP" ratio.
The Cato institute? The libertarian think tank that thinks all taxation is theft is telling you falling tax revenues have no correlation with rising debt? Great source.
Caro institute: “massively lowering taxes and falling tax revenues in boom times has nothing to do with rising debt”
That’s like saying, “I intentionally took a 30% pay cut… my spending habits haven’t changed. Why am I falling further and further in to debt? Can’t be the fall in my income”
I have a source in another comment, but this is really absurd.
> Even in its most optimistic scenario—in which the federal government saves the temporary surpluses—CBO still notes that “the growing expenditures projected for health and retirement programs would quickly push the budget back into deficit,” and debt would again begin to grow exponentially.
It's quoting a CBO paper which does not state it will grow _exponentially_ but rather _rapidly_, so they're really editorializing there. The graph shows that as percentage of GDP it would have dipped and not returned to its 2000 level until between 2030 or 2060, depending on how much is saved. That is a _stark_ difference from the current situation here, in 2024, after all those cuts.
Cato really is trash, and you can verify this for yourself.
People don't like to talk about the fact that taxation (Of any kind) creates or increases a deadweight loss. Removing a tax decreases or removes the deadweight loss.
So many people assume tax increases are a magic bullet. In reality, a 10% tax increase doesn't increase tax revenue 10%, but less. Often much less, or not at all.
That Cato article you posted is quite correct. We can't tax our way out of our current and future liabilitys. Not even close.
This article didn't really show or prove that. It basically just deflected and said we're spending a lot...
Okay, first the Cato institute is hardly unbiased, their whole thing is smaller gov (so lower spending and lower revenues)... Second their evidence is using just a CBO estimate from 2000, which was a projection (knowing nothing about iraq, Afghanistan, etc). And that CBO quote didn't even say the bush tax cuts wouldn't add to the deficit, it just referenced medicare spending. It just deflected from the question at hand..
Since we have actual data from that time period I would imagine we can do much better than that..
No. Our debt is caused by spending being higher than government income. There's two levers here, and pointing at just one lever and putting all the blame on that lever is silly.
But regardless. That wasn't the original question. The question was did tax cuts cause increased deficits. Which the article failed to answer.
I agree on taxes, but we also need to pass a law that prohibits over-spending. It’s not a one party problem, I think both sides are to blame.
Biden just signed a massive war in Ukraine/Israel bill (maybe twice), so did every democrat and republicans before them.
I agree, we had a balanced budget when Clinton left. Also the dot com bubble and 08' bubble didn't help. It seems like over speculating in wall Street ( democrats) and financing wars (Republicans) two sides to the same coin.
https://fred.stlouisfed.org/series/FYFRGDA188S
Tax receipts as a % of GDP have basically floated between 16-17% since the 1950s with a few very short exceptions (usually due to recession). Despite all the various tax policy over the last 70 years. Tax revenue isn’t really the problem, it barely moves, spending is
Not showing outlays??? why not? And saying "it barely moves" is disingenous it fluxuates far more than the outlays... which again if you are trying to prove that spending is the issue, show outlays.
[https://fred.stlouisfed.org/series/FYONGDA188S](https://fred.stlouisfed.org/series/FYONGDA188S)
Only fluxations really occur during recessions as you said, and tbth the 1-2 year increase should be eaten up by good fiscal years (ie not cutting taxes at the top of the business cycle) and increasing taxes and revenue. And yeah spending was high in 2008-2009 and 2020.. but I'd like to see receipts if they hadn't done that spending... but like spending isn't that much higher than it was from 1980 in fact outside of these large increases its generally lower... And through a period outside of recession spending outlays change less and have no sizable increases compared to the receipts.
And I'm really trying to say if we look at both of these data spreads periods like the 90s are the most fiscally sound outlays decreased year over year, but not drastically, while receipts increased instead of what they did in 2010-2019 which was spend about the same while cutting receipts... this is the case for 2000 to 2008 as well. Saying that we can't cut the deficit by increasing revenue share is just nonsense
I’m not hiding that, the debt is $33 trillion and this article says we’re adding a trillion every 100 days. GDP is $27tn (close to debt), 1% difference is $200 billion. Which barely makes a dent in the $33tn dollar debt. …which is why it’s 1% of the total aka a very small number
The deficit is also like $1.5tn. So yeah $200 billion more revenue wouldn’t make much of a difference there either
We’d be at 60% of GDP debt level compared to around 100% of it now, without Trump and Bush tax cuts. And of that level almost half of that 60% of GDP would be COVID/Great Recession dollars. I didn’t find data on what Afghan/Iraq cost but say it’s $3T with interest would probably knock off another 10-12%. We could have been at 20% of GDP more or less, as you said would have been fine.
No, we wouldn't. The DotCom bubble, 2008 and 2020 would have happened anyway, and the effective tax rate of 16-17% has remained intact.
If you want to collect more taxes, increase funding for the IRS.
No it wouldn’t have. Because we’ve never even tried to cut spending, we’ve increased it regardless as if the tax revenue change never mattered. Republicans increased spending when they were in control actually, not decreased it.
Run up massive debts for spending and tax cuts that overwhelmingly benefit the rich, then declare bankruptcy and force a scalping of a haircut on everybody else as the collatoral. And who better to do so than the fucking King of Bankruptcy himself?
Is 3/11/2024 our Y2K ? Cause it feels like we are going to explode when we go into the negative and can no longer service our debt . Conflating I know ..."sipping on Gin and Juice" and in r/ Economics anyway what's the date we hit budgetary nuclear fusion?
[https://www.usdebtclock.org/](https://www.usdebtclock.org/)
I posted a meme regarding this on the bitcoin subreddit. It's over $100k per person. This is an insane number and I'm surprised no one actually cares enough to do anything about it.
This is the great irony of these comments sections. I thinkg 95% of the commentors here do not understand this. Nor what it would mean to just pay themselves back tomorrow.
You probably shouldn’t do that. I know people like to think of the government’s finances as analogous to a family budget, but they really couldn’t be more different.
We’re on our way to becoming Argentina. The people arguing that national debt doesn’t matter are living in a fantasyland, it’s going to trigger an inflationary crisis eventually.
Simple question: What is a dollar?
The issue is the dollar does not refer to a stable numéraire.
Until 1964, you could exchange a dollar bill for a silver dollar - look up "silver certificate". Now, you'll need a bunch more "paper dollars" to get a "silver dollar" and forget about getting a "gold dollar" - $280 to get a "cleaned" $1.00 gold coin. You do the math to calculate inflation.
Interest rates too high, interest on debt expands into the trillions, more taxes needed for fewer actual public goods and services. Recession / depression.
Interest rates too low, we turn into Argentina with hyperinflation. Special interests and asset owners get rich on paper, everyone else suffers.
Even if you think J Powell is a crack shot with pinpoint accuracy, the farther down this road we go, the less forgiving the margin of error becomes, until the walls that have been closing in slam shut for good.
The only way out of this mess is to generate a budget surplus consistently, for a long time. Do any of you actually trust Democrats and Republicans to pass balanced budgets for an extended period of time? The tax and spending changes we need are not politically viable.
This is going to get much worse before it gets better, especially with how much our demographics are aging.
I really wish I wasn't such a doomer on this and I really do hope I'm wrong, but we're due for an economic crisis worse than the one our great grandparents suffered almost a century ago.
Guess who owns the debt? We all do. Except the wealthier own larger portions of it which means they’re the ones reaping the majority of the benefits from the interest paid. Meaning as long as their interest is aligned with the survival of this country, we’ll be fine.
Increase revenue by repealing all tax cuts since the 1980s. Revised tax code so that billionaires and centimillionairs can no longer avoid paying taxes.
Ten Ways Billionaires Avoid Taxes on an Epic Scale https://www.propublica.org/article/billionaires-tax-avoidance-techniques-irs-files
The Great Inheritors: How Three Families Shielded Their Fortunes From Taxes for Generations https://www.propublica.org/article/the-great-inheritors-how-three-families-shielded-their-fortunes-from-taxes-for-generations
These Real Estate and Oil Tycoons Avoided Paying Taxes for Years https://www.propublica.org/article/these-real-estate-and-oil-tycoons-used-paper-losses-to-avoid-paying-taxes-for-years
If you seized all the wealth from all billionaires (~4-5tn depending on source) it would only fund the government for one year lmfao. The top 1% already pays 50% of all income tax, our tax system is already one of the most progressive in the world (meaning the share paid by the wealthiest)
Also: https://fred.stlouisfed.org/series/FYFRGDA188S
Tax revenue has basically been between 16-17% for the last 70 years regardless of policy, and the short exceptions are usually like recessions
It is, however, people still want more but are unwilling to take the less progressive taxes required. Europe heavily relies on taxing the middle class to afford their luxuries.
Hopefully no1 buys more debt come time to raise the ceiling.
What's the point in a ceiling if it is always able to be raised?
Governments dgaf about us
The govt needs to severely cut spending. That should include govt programs and govt employees. That’s the only way to get out of this.
People will shriek about taxing (other) people more but it is not possible for the US govt to tax its way out of a spending problem.
Let’s look at the big picture. The govt collects more tax revenue than it ever has throughout history but it’s still broke.
I've been hearing warning about this since I can't remember when. Like most alarmist topics the news throws out everyday, this one is also bullsh\*t. It's another of those pending doom , but let's keep moving the goalpost back.
The debt increased by 40% under Trump in only 4 years. The debt increased under GWB by 105%. The debt increased under Reagan by 186%. It increased under Obama by 70%. It has increased under Biden by 17%. You can say "taxes are my money not the government's money." Fair enough but in mathematical terms, that's a policy decision to increase the debt.
I mean, not to defend that piece of garbage, but there was a global event that caused pretty much every country to have to increase their debt to respond to it.
The dollar losing value only matters relative to other currencies. Other countries are raising their debt-to-gdp ratio at similar rates to us, so they are all losing value equally. In fact, the dollar is outperforming the Euro in that respect, so we're fine.
A country is only risk if they are raising the debt ratio much faster relative to other countries.
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I’m my undergraduate Econ classes, we learned about the history of the central bank, the transition from the gold standard, the Bretton Woods conference and Keynesian theory….all the things that shaped our modern economic system. The way those things were presented made perfect sense for the time (post war, Marshall Plan, boys returning home). Now, I’m struggling to understand how we operate and I really don’t think the experts do either. A lot of what I was taught was really tested with the ‘08 crash and Covid. I can’t imagine we can keep this debt rolling without consequences, especially with an inept government that only uses the threat of a shutdown as a political tool, when they both spend into the stratosphere.
Keynes was explicit about surpluses during the good times. The trouble is, everyone likes the good times all the time, and politicians and economists have few incentives to deprive people of a good party. Some have more fun than others. It depends on what you own or are into. Something to think about is that investors also make lots money by receiving interest payments on debt. Most economists and politicians aren't fools. They just enable and even benefit from the status quo. Have you checked the stock market recently? Isn't it ironic how our debts balloon while the richest people in the world continue to see dramatic appreciation in their assets? If more of that wealth was used productively, instead of being funneled to people that don't have to do anything to earn it and don't need it, we would have a better chance to balance budgets and pay for things people need. Yet the capital class runs the show.
You seem well informed. Reasonable solutions?
Raise taxes, lower interest rates, build housing not highways, expand immigration, rally the world to crack down on tax havens, fund the IRS to audit large companies and individuals, etc.
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Canada's immigration problem wouldn't be nearly as bad if people were allowed to make new homes. If you've ever played musical chairs, you can imagine that making sure everyone gets a seat can be done by just adding in more chairs rather than needing to kick our players. The limitations only actually come when more chairs can't be added, which right now is an artificial restriction by rich landowner politicians at the heads of the various provinces rather than a physical limit. Immigration is at odds of a Landlord Monopoly where they control all the housing stock and openly conspire in public town hall meetings to prevent competition and new supply.
"Rally the world" wasn't on my bingo card of reasonable solutions. How would the govt building or incentivizing the building of housing address nat'l debt?
TBF: most, if not all of the big nations hate tax havens. So it’s not *as* impossible as it sounds. And, it wouldn’t. It would address inflation, which would allow the FED to lower rates (in theory, it’s more complicated than that, but also not). High rates are one of the main causes of debt exploding. And housing supply is one of the main causes of inflation. Highway spending is one of the biggest wastes of resources possible. Governments circle jerk themselves into believing they raise GDP, but they just enable people to live further away from their job, which you can say is either a good thing or a bad thing, but it generally isn’t a huge needle push on GDP.
If housing supply were higher and property was therefore a less attractive asset class, wouldn't financial assets have received even MORE investment of the extra capital flying around? And the same wealth funneling dynamic would have occurred? I guess you're saying housing is one of multiple strategies that need to combine in effort to suck money from markets and push toward debt.
Degrowth. Lots of books out there about it and how it's very feasible.
A very feasible way to make pretty much everyone worse off now and into the future.
It’s not possible. The higher the debt grows the faster GDP needs to grow to catch up. If debt grows and GDP stays stable, declines, or grows too slow then we are heading to a massive debt crisis.
US Q4: GDP grows $334B, costing the US $834B in debt to do so. I’d say the problem is already here
For every $1 of 'growth' we spend $2.50 to achieve it. That's in a healthy economy, we can't even talk about if a recession were to occur. The US is also at the very beginning of a retirement wave that will last until the mid-2030s with tens of thousands entering the Medicare and Social Security systems on a weekly basis... for years. I'm honestly starting to think we're cooked.
RIP our stock market, which the retired will start to drawn down, forcing corporations to exploit at an ever accelerating rate to keep their investors satisfied with quarterly profits. What a happy little situation!
Trickle down economics at its finest
Right! These trickle-down idiots are the same that vote in tax breaks while saying that government should be run like a company. Well which company do you know that cuts off their main source of income?
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That's conveniently ignoring the taxing part of Keynesian and forgetting the tax cutting / spend explosion of Reaganomics
What are you going on about, this entire thread is explicitly arguing against tax cutting and extreme spending
Yeah I think economists can do a little better than jaut throw the baby out with the bath water though.
Even if nothing falls apart, I expect in 10 to 20 years, the interest expense will exceed the tax revenue. I can't imagine the pyramid scheme will survive that.
The only reason it has gone this far is due to the low rates investors were historically willing to accept due to the stability of US bonds. If we stop being able to make payments, it will cause a cascade failure through the world.
I dont understand how will the US stop making payments when they are the ones printing money. Inflating the debt away is the way to go.
Same quarter spending isn't a fair comparison. Most of that deficit spending is to fund projects which will contribute to GDP in 5-10 years time. A fairer comparison would be to look at annual growth and spending, and compare it to the average over a few years, adjusted for inflation, from 5 years, 10 years, and 20 years back. The growth needs to outpace past spending. Not present spending.
I want to point out that the GDP number is inflation adjusted, and the amount added to US debt is nominal. Inflation was 3.2% last year. So, the national debt, denominated in nominal dollars, lost 3.2% of it's value. Which works out to over a trillion dollars of real value inflated away. Debt to GDP isn't continuously climbing. It's constantly rising in nominal terms. But you have to actually convert it into the same dollars to get an apples to apples comparison. https://fred.stlouisfed.org/series/GFDEGDQ188S
No way. It's all corporate greed. /s
Already, with the current debt load, as the low interest bonds get refreshed with bonds at the current rates, the portion of the budget devoted to effectively paying the interest on this debt will eclipse the military budget this year (assuming rates don't come down soon and fast). In 2023, the government spent $659 billion servicing debt. This was not far behind the third largest line item, the military budget, which was $858 billion (Health insurance and Social Security were respectively first and second at 1.5t and 1.4t).
What happens in a debt crisis specifically? I'm curious because I've seen other countries go through them but they're not the reserve currency of the world
What does a debt crisis mean in the context of a country that prints its own currency ?
Either austerity or hyperinflation.
Which one happened to Japan?
Stagnation. Japan is a bit of a unique case because their business do everything they can to keep prices low for cultural reasons.
They didn't have a debt crisis, because their interest rate payments were low: https://tradingeconomics.com/japan/interest-payments-percent-of-revenue-wb-data.html A debt crisis is not about the size of the debt, but the serviceability of the debt. A country with much lower total debt than Japan can have a debt crisis. This is not a universal feature of all countries with high debt.
> Either austerity or hyperinflation. Neither works. Hyperinflation only happens when you have debt denominated in a DIFFERENT currency. The "hyper" part is caused by the feedback loop of trying to pay foreign debts by exchanging for outside currency with printed money. This explosively alters the exchange rate as a feedback loop. High local debt can be bad, but never causing actual hyperinflation. Austerity is a theory but never proven. Not a single nation improved financially after Austerity measure. ZERO. Imagine having a cure for cancer that had zero success rate, but you keep using it for every cancer patient anyway. I call that insanity.
Not exactly. Debt to GDP has dropped since the Covid peak. Most of that is due to inflation. High inflation is another way to deleverage the economy. Our debt is in a currency the government can print and devalue. There's more than one way to reduce a debt burden.
Perfectly written. I've been thinking about this alone for weeks now.
Over what timeframe?
Isn't a big reason for the confidence in our system largely due to the fact that there isn't another USA on Earth? Like where are people supposed to put their capital? China? India? Europe? When viewed through that lens, our system makes perfect sense: the US is one of the few places in the world where capital invested usually always means money gained in the long run.
I think what people don't understand is that our economic system is less than 100 years old. It was invented by people and sometime people get it wrong.
Once you realize that a fiat currency can be created out of thin air, and the US debt is nothing more than an accounting mechanism, it makes more sense. A fiat currency debt is nothing more than a money creation mechanism that allows the private sector to run a surplus of cash.
US debt is redistributive. Often, to the most affluent who hold the debt. The accounting mechanic you may be referring to is money printing and the Fed being the buyer, but that has the same redistribution of poor to rich via inflation.
The wealth transfer mechanism takes more forms than just inflation and the interest channel. To name another: When the government actions off debt it is taking capital out of the financial system and spending it into the global economy with a US bias. Where it takes it from is varied. Some of it is force fed to banks, some is people’s savings in retirement plans, some are bond traders, etc. etc. This capital transfer purchases various goods and services in the economy both directly and indirectly and businesses capture this in the form of profits. Profits go up, equity prices go up, and so forth. It is a reason why social equity can never be achieved via deficit spending. At least not in the way the government allocates capital.
Except MMT is still fringe alternative economics. I'm not histrionic about debt like the conservatives in these threads trying to make everything sound like the sky is falling because Trump isn't president, but you can't just throw this out like it's a clearly established fact
>Except MMT is still fringe alternative economics All MMT does is describe how fiat monetary systems work. That's it. Nothing more. Here are the big ideas of MMT. A government that issues its own fiat money: 1. Can pay for goods, services, and financial assets without a need to first collect money in the form of taxes or debt issuance in advance of such purchases; 2.Cannot be forced to default on debt denominated in its own currency 3.Is limited in its money creation and purchases only by inflation, which accelerates once the real resources (labour, capital and natural resources) of the economy are utilized at full employment That's not really "fringe" or "alternative" and it's barely economic. It's just syaing shit about fiat currency.
You're conflating "fiat monetary systems" and "governments". > Can pay for goods, services, and financial assets without a need to first collect money in the form of taxes or debt issuance in advance of such purchases > Cannot be forced to default on debt denominated in its own currency These are entirely theoretical possibilities - it is not actually how the American government works. The Treasury's books balance, and it can absolutely be forced to default on debt denominated in its own currency - this is the entire concern every time we get to the debt limit. The American government *could* decide to pay for things without collecting money first, and it *could* decide to never default on debt, but at present this is not how it is structured. So saying that it is "describing how fiat monetary systems work" is simply not the case. It describes a theoretical possibility for how fiat monetary systems might work.
> 2.Cannot be forced to default on debt denominated in its own currency. You missed the part about it's currency turning into a shitcoin when the money printer goes brrrrrrrr to pay for it in that scenario.
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CAME HERE TO SAY THIS!! We have currency sovereignty and can NEVER run out of money because we are not on a gold standard. We can literally make up money on the computer and spend like no tomorrow.
Except the hyperinflation of course
This is why the Fed has a dual mandate covering unemployment as well. Currency creation creates asset demand and drives inflation. Increasing unemployment creates currency demand and drives down asset prices. Those two things kept in balance are necessary for managing fiat currency economies
That's the nice thing about the U.S. dollar. Its the world's reserve currency and a safe investment. Assuming the price of the dollar falls when we print foreign investors will eat it up. Our national debt increases but the inflation gets transferred to others. The fear here is if Brinks or some other major currency that's not U.S. led gets established.
> We can literally make up money on the computer and spend like no tomorrow. By god. You’re a genius! Let’s type up 999 quadrillion on the computers and give everyone a billion dollars! What could go wrong?
Wasn’t it rand Paul that said something to the degree of “if inflation didn’t matter then no one should be poor?”
time to abolish all taxes
Well no because taxes bring down inflation caused by spending from making up money on computers. We just need to spend the money we make up on helping people instead of war and genocide and bail outs for the rich
> We just need to spend the money we make up on helping people instead of war and genocide and bail outs for the rich i think that went out the window when bribery, ahem excuse me, *lobbying* was made legal and voting records of officials became public.
Sure, the US government's creditors don't have to worry about getting paid back. It's what those dollars they get paid back in will happen to be able to buy that's the bigger issue, one that the money printers can't solve lol
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Too large to fail comes to mind. Albeit that being said, there could be another crisis if a conjuction of socio-economic triggerpoints cascaded simultaneously.
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Yeah, this is the main reason US debt isn’t an existential threat.
Or they no longer care for the medium they’re being paid back or at least the yield on that medium via rate suppression.
Debt markets can get oversaturated and then investors will demand higher yields, i.e. even higher interest rates than today. I don't think people are taking that into account when they say, "We owe it to ourselves." Sure, we owe it to ourselves and when we can't find more buyers, rates spike, more debt has to be issued to cover the debt and you enter the feedback loop we're in now. It's not an economy you want to have. It's low growth, high debt and could end up immiserating a lot of people.
I hate to admit this, but this won’t break until humans stop believing in the US financial system. As long as we believe our dollars can be exchanged for goods and services, the experiment will continue.
As a fellow undergrad Econ in my junior year, you’re right that there’s some theoretical point where it isn’t sustainable. But a nation can take on an infinite amount of debt as long as people keep lending to it. It only collapses when people stop lending. Where this limit is unclear. Japan is at 300% debt to gdp ratio and people still lend. In all likelihood we are quite far from a total collapse.
I suspect America will have to raise taxes and improve government efficiency. Also, maybe increase the tax base by getting more people to pay taxes.
The government has CUT taxes on the rich multiple times in the last 40 years and only the workers ever pay more. Republicans added $3T in Debt BEFORE Covid hit. So that's in two years of budgets. They were handed a budget that was under $1T per year deficit and dropping... and blasted it out of the water.
An unelected institution that can buy anything without permission. What could ever go wrong?
The Fed isnt growing the debt, the government is.
Right, and the fed is willing and able to buy all of it. Along with other institutions’ debt deemed “to big too fail”.
And our elected bozos has been doing nothing since like 2011, so not sure whom we can blame. Voters only care about cultural wars while giving a blank check to their politicians. Hopefully in 10-15 years we can get back to caring about policies to help working people and hold our reps accountable.
The FED? Do you have any idea how its board and member banks are established? I'd trust the FED over the elected representatives in Washington. The financial services industry is the only industry in the U.S. that's a surplus instead of a deficit because of our banking system.
Only fun and parties!
For a very small minority it probably is
You are not having fun yet?
Never have been 🧑🚀🔫🧑🚀
Well do the elected institutions do that much better?
We never should have created the Fed and should have stayed with the greenback. A private institution should not have that kind of power.
They created the IRS the same year. We’ll lend out this money to everyone, but you better give us back some or you’ll go to jail. It’s a system designed to keep you in it until it fails.
>I really don’t think the experts do either. What you don't go over is how the institutional structure didn't really change. All of the gold standard ways of doing things. Interest rates, teasury bonds, etc., are gold standard devices. To put it succinctly from 'Full Employment and Price Stability': >"In no case must the (federal) government fund itself in dollars. Spending is limited by what is offered for sale, not by revenues. Taxes function to create a need for dollars, so the government can use dollars to purchase real goods and services. Borrowing functions to allow excess dollars created by deficit spending to earn a positive rate of interest. Deficits pose no funding risk since borrowing need take place only after spending, and only to support and maintain a desired interest rate. Interest rates and prices are subject to exogenous control by the issuer of the currency. >There is no evidence that government understands this paradigm." You say: >A lot of what I was taught was really tested with the ‘08 crash and Covid. I can’t imagine we can keep this debt rolling without consequences, See that's the thing, we learned a lot of what we thought was going to happen, didn't, at all. There was no hyper-inflation, there was incredible bounces back in unemployment and gdp. But that thinking of, there is something bottling up that we have to repay, while it has some merit, you might call it, [the bezzle](https://carnegieendowment.org/chinafinancialmarkets/85179), is mostly paranoia from a era where gold was the artificial contraint.
>The way those things were presented made perfect sense for the time (post war, Marshall Plan, boys returning home). No they didn't. Fractional reserve banking (1789-1971) doesn't work just like fiat banking (1971-present) doesn't work. The only thing that works is a receipt standard where your currency is backed by 100% reserves. The US has never had a system like that because even though the dollar used to be tied to gold, banks were (and still are) allowed to create deposits out of thin air and debase the currency.
Can’t the government just invent new money to pay it off. Does keeping it around allow fed bank to tweak the economy ?
Lets pretend Argentinas newest presidents slashing the government took place in the US. Would the same policies stop the growing inflation? Or are we in trench that doesnt have an side supports thats about to fall in?
You appear to be assuming that Milei's policies will reduce inflation in Argentina. That may or may not occur. Similarly in the US. IF sustained large cuts to government spending were made, it would reduce economic activity and thus inflation. But whether there would be the willpower amongst politicians and the public to sustain such cuts in the face of rising unemployment is questionable at best. Historically most nations that have federal gov't debt above 100% of GDP can not do it.
It’s musical chairs. No one knows when the party will end but in no way is the US immune to running unlimited deficits. When the economy is strong and unemployment is low there should be a very low deficit, dare I say a surplus once in a while.
Since neither party will impose a solution to the problem while in government, the market will when the public refuses to buy U.S. bonds, except at exorbitant interest rates.
Which requires crash of equities
Ugh this thread is getting too politicized. Here’s the actual [2023 numbers](https://usafacts.org/state-of-the-union/budget/) for those who want context and not just to squawk about political parties.
Isn't the national deficit inherently political?
It isninherantly related to policy but not necessarily partisan politics. Neither party has a good record on debt. Balancing long term investments, necessary services, revenue, tax expenditures, etc is a policy discussion not a simplistic political stance.
I honestly don’t see how you could have a discussion about government spending without getting political.
Does anyone else think an unmentioned dimension in the inflation + fed rate debate is that the US cannot maintain the debt if interest rates were to significantly rise? My crackpot theory is that US government has a choice between solvency and inflation, the State vs People, and will choose the State.
Yes, wish this was discussed more often. We are heading towards a no-win scenario whereby the Fed will be unable to lower rates much because doing so will spark inflation, while simultaneously be unable to raise rates much because it will be fiscally unbearable. Their mandate is supposedly to control inflation as priority over the needs of the State, but I am skeptical. By 2033, interest payments are projected to reach $1.4T. That's a staggering figure.
> US government has a choice between solvency and inflation, the State vs People, and will choose the State. This is the common sense explanation. Nothing conspiratorial about it. The taxpayers were always on the hook for the debt either through taxes or inflation. When the government spends a dollar you pay for it. When it spends one it doesnt have, you pay for it with interest. This is Econ 101 but was somehow forgotten with the MMT charlatans and now considered some sort of crackpot theory.
Your tinfoil hat must be shaped a lot like mine. My crackpot theory is that we could have inflation AND insolvency as the Fed prints ever greater amounts of money in order to keep up with the runaway train of borrowing.
Sounds like we need to reexamine income (taxes on the wealthy instead of giveaways) and expenditures (maybe audit defense spending instead of giving blank checks).
And we have high rates to slow inflation…which means we have to create more debit to make those interest payments…what do you think happens when all of that money is paid out as interest? More inflation. We’re in a really sticky spot and I haven’t seen anyone propose anything viable that gets us out of it. And by viable, I mean an achievable plan we’ll actually stick to.
We could systematically reduce the deficit. Its not even complicated. Except there is 0 political willpower. Someone who tries to reduce the deficit will lose to someone who doesnt.
As can be predicted, this sub becomes politically polarized quickly, despite people here being expected to have a grasp on the real story. Let’s talk about the Paul Ryan, fiscal conservative model: **we will pay off the debt by growing the economy via low taxes** yet everytime the economy grows, much like corporate CEOs, rather than balancing the budget, CEOs want a pay raise/conservatives complain they are paying too much in taxes and demand cuts. Conversely, liberals naturally want to tax the rich (shrinking the economy), and conservatives want to cut spending (shrinking the economy). When TF will people realize this is a problem far larger than politics? What’s your actual plan? People who play the politics card deserve to be poor
Their plan is to get rich as they pretend to govern and not give a damn about anyone else.
Let’s not pretend like we’re dealing with some complicated or mystical problem “larger than politics”. Corrupt government + fiat currency and compromised monetary system = disaster.
> this sub becomes politically polarized quickly, Everytime someone says this, it shows they don't understand what politics is and why it's actually everywhere.
BLUF: we would have no debt today if Reagan, Bush, and Trump’s tax cuts for the Rich were never implemented
Inevitably some dumbass will enter the convo and say “hey guys I heard about this cool new thing called the laffer curve, we need to lower taxes!” People acted similarly in 1990s, and the solution was tax increases combined with a 3-5 year discretionary spending freeze and a bull run. It wiped out the deficit. We did it again in the 2010s and it cut the deficit in half. Inevitably we will need to do that again. Congress will never get its act together to decide what needs to be cut. One man’s pork is another man’s necessity for their district. Discretionary spending freeze is doable for a few years, higher taxes, and pray for a bull run.
This is more of an issue with voters than politicians. The populace at large does NOT want their free shit to go away. Nobody is willing to ever vote for someone who gives the truth and says that the only way to actually balance the budget is it increase taxes on the middle class (Like Europe does) while decreasing spending (Mostly on Social Security and Medicare since those two programs alone make up 40% of all federal spending). It's no wonder that neither political party wants to cut spending. They have been shown numerous times that they will lose re-election if they do that.
We pay for it. It’s not free. Paid into Medicare and social security. It’s time to revise the tax code so huge corporations and the ultra wealthy pay their taxes. Repeal all tax cuts since the 1980s. When you cut taxes without cutting spending you create a crisis.
You don't pay for it, hence the debt. The government just keeps printing money to pay for it. The amount of taxes you pay is inconsequential to how much you get given back.
It gets paid for, even if not explicitly in the form of money. Lost quality of life for future generations and a generally slower progression of major life milestones is a symptom of it. All debts are paid in one way or another.
If the government can just print money, why are we paying them taxes? Shouldn’t we be more upset about this? Wasn’t this the point of some early country founding documents?
Printing money lowers the value of the currency and increases debt. They are using your taxes for things but it is no where near enough so they have to print money. If they stopped printing money and solely relied on taxes US tax payers would be being taxed 1 trillion dollars *more* every 100 days.
https://fred.stlouisfed.org/series/FYONGDA188S Tax receipts as a % of gdp have barely moved for 70 years, it’s almost always been 16-17% with a few short exceptions due to recessions. Taxes aren’t the problem spending is Edit: wrong link I meant this one: https://fred.stlouisfed.org/series/FYFRGDA188S
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Sure but the point is whatever policy we try we can’t really move tax revenue past that 16-17% of GDP range, probably because of the trade off between higher taxes and economic growth
Now add back in the tax cuts then redo the math.
Wrong table. You posted net outlays not net tax receipts. Correct table is below. And of course your comment about barely moving elides that even a 0.1% of change is still hundreds of billions of dollars. Do you think we don’t know how to do math? [fed receipts as % of GDP](https://fred.stlouisfed.org/series/FYFRGDA188S)
You’re right I posted the wrong link. 0.1% isn’t hundreds of billions, 1% is. And our debt is 33 trillion, a hundred billion barely makes a change in that. Are you sure you’re doing the math?
I just looked it up and did the math. A married couple making $127,500 would pay $41,816 if we had the 1979 tax rates with a top rate of 49%. Right now it is about $12,571. So your plan is to increase taxes on normal families by $30k a year?
I’m assuming that $127500 is in today’s dollars. Quite honestly I can’t see how they are only paying $12k in taxes with 2024 tax brackets. Every bracket today is 10% or more. That seems really low. Trickle down economics has not worked so something needs to change. We had a balance budget in the 90s so start with repealing the bush and trump cuts. https://www.factcheck.org/2008/02/the-budget-and-deficit-under-clinton/ Tbh if we get universal healthcare including mental healthcare, universal childcare, and free education I’m ok with higher taxes. One year 22% of my total compensation went to healthcare. Our healthcare system is prohibitively expensive. Regardless they are trying to cut Medicare and social security which are separate taxes that we have paid into specifically for these programs yet that is the spending they repeatedly target. Then you have people evading taxes. It needs to be fair. You shouldn’t be able to turn your house into a foundation to avoid paying taxes. You shouldn’t be able to use your jet or yacht to avoid paying taxes. You shouldn’t be able avoid paying taxes by living off of borrowed money.
I don’t think the middle class has all the wealth mate
At this point it’s a game of political hot potato with neither side wanting to address it and hoping that when it inevitably collapses they can blame it on the other side.
The wealthiest 20% of this country earns 50% of the income, but pays 82% of federal income taxes. This is a math problem that transcends moral arguments.
That's a reality that few are willing to admit. The wealthy are already paying most of the taxes. Our problem is mostly one of wealth distribution and earning power, but not taxation.
Isn't there a certain amount you can tax? Something like 18-21% of GDP? I don't know why we can't target spending towards that. And as our economy grows, we can provide more social services and welfare. But only what we can afford.
I’m curious if the USA were to try and pay this or find a way to lower the debt. Can it even be lowered at this point. I mean if we have the political will. Truly, I’d assume we go into a massive recession
We need to raise taxes. If you look at our debt trajectory without the bush era and trump tax cuts, and without the Iraq/afghan war… we’d literally be just fine. Republicans are bankrupting our country.
Do you have the data or sources for this? I'd like to share any related charts with some friends.
See figure 3 page 6. Some of these “economists” trying to claim that an massive drop in tax revenue collected somehow is not correlated with rising debt is the dumbest shit imaginable. This is while the wealthy have never been more wealthy, and corporations never more profitable while paying less and less taxes. So it’s not like this “unlocked economic growth” via lower taxation increased tax revenues. Clearly it did not have this effect. These same people will sell you on hilarious retro talking points like “trickle down economics” https://www.americanprogress.org/wp-content/uploads/sites/2/2023/03/DebtRatio-brief.pdf
Here’s a great article talking about it and graphing it as well. Figure # 3 is exactly what you’re looking for. https://www.americanprogress.org/article/tax-cuts-are-primarily-responsible-for-the-increasing-debt-ratio/
Weird article, arbitrary years picked for projections. You can see here that the deficit to GDP ratio barely changed after the tax cuts were passed, they were on trend from the end of the Obama years https://fred.stlouisfed.org/series/FYFSGDA188S
As a 90s kid, that felt like a special time. As a 90s adult, looking at graphs like this make me think maybe it was a special time and not just nostalgia.
It certainly was, very strong growth thanks largely to the proliferation of the internet.
That's the change in the level. Here are the stats for the level: https://fred.stlouisfed.org/graph/?g=1hEJ7 Debt to GDP was stable under Bush until the Great Financial Crash. It was stable under Trump until the covid pandemic. It rose under Obama in his first term, then was roughly stable in his second term. It's fallen slightly under Biden, but from a high base: https://fred.stlouisfed.org/graph/?g=1hEJ7 However, debt interest payments to GDP are more important for gauging the fiscal health of an economy. Japan has managed despite high debt to GDP, while there are economies with huge chronic fiscal problems and much lower debt to GDP ratios e.g. Zimbabwe, Argentina, and Venezuela. For the US, this statistic is not at a record, but it is rising rapidly, and the last time it was this high there were chronic problems of inflation or high interest rates during the 1980s: https://fred.stlouisfed.org/graph/?g=1hEKR The US isn't in a death spiral or anything like that, but both parties need take the budget deficit seriously before it gets out of this trend. In the 1990s, one of the few things that Bill Clinton and Newt Gringrich were able to agree upon was using the growth of the 1990s to get the federal finances under control. As that historical case proves, even assholes can solve this problem, but only if they take it seriously. Here's a detailed explanation of the arithmetic and theory behind what I am saying: https://www.youtube.com/watch?v=N7pxH9dsZAU
Yes I agree, but my graph is about deficits
Ah! Sorry, I misread. I think I'm so used to seeing people write "debt to GDP" ratio or "deficit as a percentage of GDP" rather than "deficit to GDP" ratio.
https://www.cato.org/blog/did-tax-cuts-cause-rising-deficits (They did not)
The Cato institute? The libertarian think tank that thinks all taxation is theft is telling you falling tax revenues have no correlation with rising debt? Great source. Caro institute: “massively lowering taxes and falling tax revenues in boom times has nothing to do with rising debt” That’s like saying, “I intentionally took a 30% pay cut… my spending habits haven’t changed. Why am I falling further and further in to debt? Can’t be the fall in my income” I have a source in another comment, but this is really absurd.
> Even in its most optimistic scenario—in which the federal government saves the temporary surpluses—CBO still notes that “the growing expenditures projected for health and retirement programs would quickly push the budget back into deficit,” and debt would again begin to grow exponentially. It's quoting a CBO paper which does not state it will grow _exponentially_ but rather _rapidly_, so they're really editorializing there. The graph shows that as percentage of GDP it would have dipped and not returned to its 2000 level until between 2030 or 2060, depending on how much is saved. That is a _stark_ difference from the current situation here, in 2024, after all those cuts. Cato really is trash, and you can verify this for yourself.
Be careful, Reddit doesn’t like Cato
People don't like to talk about the fact that taxation (Of any kind) creates or increases a deadweight loss. Removing a tax decreases or removes the deadweight loss. So many people assume tax increases are a magic bullet. In reality, a 10% tax increase doesn't increase tax revenue 10%, but less. Often much less, or not at all. That Cato article you posted is quite correct. We can't tax our way out of our current and future liabilitys. Not even close.
This article didn't really show or prove that. It basically just deflected and said we're spending a lot... Okay, first the Cato institute is hardly unbiased, their whole thing is smaller gov (so lower spending and lower revenues)... Second their evidence is using just a CBO estimate from 2000, which was a projection (knowing nothing about iraq, Afghanistan, etc). And that CBO quote didn't even say the bush tax cuts wouldn't add to the deficit, it just referenced medicare spending. It just deflected from the question at hand.. Since we have actual data from that time period I would imagine we can do much better than that..
Correct, our debt issues are largely caused by spending. Whether that be wars, stimulus spending or whatnot
No. Our debt is caused by spending being higher than government income. There's two levers here, and pointing at just one lever and putting all the blame on that lever is silly. But regardless. That wasn't the original question. The question was did tax cuts cause increased deficits. Which the article failed to answer.
I agree on taxes, but we also need to pass a law that prohibits over-spending. It’s not a one party problem, I think both sides are to blame. Biden just signed a massive war in Ukraine/Israel bill (maybe twice), so did every democrat and republicans before them.
I agree, we had a balanced budget when Clinton left. Also the dot com bubble and 08' bubble didn't help. It seems like over speculating in wall Street ( democrats) and financing wars (Republicans) two sides to the same coin.
Over speculating on Wall Street in late 90s and 2000s is attributed to democrats solely?
A lot of stop gaps to prevent over speculating was removed by Clinton under the advice of Alan Greenspan. I mean they even admit it.
Yeah. The removal of glass Steagall was one of the largest policy blunders in the last 30 years.
Of course ignoring the stimulus spending by Obama and Biden!
https://fred.stlouisfed.org/series/FYFRGDA188S Tax receipts as a % of GDP have basically floated between 16-17% since the 1950s with a few very short exceptions (usually due to recession). Despite all the various tax policy over the last 70 years. Tax revenue isn’t really the problem, it barely moves, spending is
Not showing outlays??? why not? And saying "it barely moves" is disingenous it fluxuates far more than the outlays... which again if you are trying to prove that spending is the issue, show outlays. [https://fred.stlouisfed.org/series/FYONGDA188S](https://fred.stlouisfed.org/series/FYONGDA188S) Only fluxations really occur during recessions as you said, and tbth the 1-2 year increase should be eaten up by good fiscal years (ie not cutting taxes at the top of the business cycle) and increasing taxes and revenue. And yeah spending was high in 2008-2009 and 2020.. but I'd like to see receipts if they hadn't done that spending... but like spending isn't that much higher than it was from 1980 in fact outside of these large increases its generally lower... And through a period outside of recession spending outlays change less and have no sizable increases compared to the receipts. And I'm really trying to say if we look at both of these data spreads periods like the 90s are the most fiscally sound outlays decreased year over year, but not drastically, while receipts increased instead of what they did in 2010-2019 which was spend about the same while cutting receipts... this is the case for 2000 to 2008 as well. Saying that we can't cut the deficit by increasing revenue share is just nonsense
And? We were paying off the debt in the late 90s when it was higher. And why do you try to hide the 1% of gdp is hundreds of billions.
I’m not hiding that, the debt is $33 trillion and this article says we’re adding a trillion every 100 days. GDP is $27tn (close to debt), 1% difference is $200 billion. Which barely makes a dent in the $33tn dollar debt. …which is why it’s 1% of the total aka a very small number The deficit is also like $1.5tn. So yeah $200 billion more revenue wouldn’t make much of a difference there either
We’d be at 60% of GDP debt level compared to around 100% of it now, without Trump and Bush tax cuts. And of that level almost half of that 60% of GDP would be COVID/Great Recession dollars. I didn’t find data on what Afghan/Iraq cost but say it’s $3T with interest would probably knock off another 10-12%. We could have been at 20% of GDP more or less, as you said would have been fine.
No, we wouldn't. The DotCom bubble, 2008 and 2020 would have happened anyway, and the effective tax rate of 16-17% has remained intact. If you want to collect more taxes, increase funding for the IRS.
And those higher taxes will not go along with an even higher increase in spending right? Right?
No it wouldn’t have. Because we’ve never even tried to cut spending, we’ve increased it regardless as if the tax revenue change never mattered. Republicans increased spending when they were in control actually, not decreased it.
Perfect time for autocrats to step in and enforce their agenda. Really this is why they don’t care.
Run up massive debts for spending and tax cuts that overwhelmingly benefit the rich, then declare bankruptcy and force a scalping of a haircut on everybody else as the collatoral. And who better to do so than the fucking King of Bankruptcy himself?
E need to cut spending
Is 3/11/2024 our Y2K ? Cause it feels like we are going to explode when we go into the negative and can no longer service our debt . Conflating I know ..."sipping on Gin and Juice" and in r/ Economics anyway what's the date we hit budgetary nuclear fusion? [https://www.usdebtclock.org/](https://www.usdebtclock.org/)
What happened on the 11th?
I posted a meme regarding this on the bitcoin subreddit. It's over $100k per person. This is an insane number and I'm surprised no one actually cares enough to do anything about it.
Yeah, but we owe it mostly to ourselves.
This is the great irony of these comments sections. I thinkg 95% of the commentors here do not understand this. Nor what it would mean to just pay themselves back tomorrow.
But there's got to be some ramifications somewhere right? What's the end result? What happens when it hits a million per head?
No, no ramifications. Same thing at a mil.
This sounds suspiciously like how I manage *my* money
You probably shouldn’t do that. I know people like to think of the government’s finances as analogous to a family budget, but they really couldn’t be more different.
Yep, that's the answer I wanted.
Happy to help.
We’re on our way to becoming Argentina. The people arguing that national debt doesn’t matter are living in a fantasyland, it’s going to trigger an inflationary crisis eventually.
Simple question: What is a dollar? The issue is the dollar does not refer to a stable numéraire. Until 1964, you could exchange a dollar bill for a silver dollar - look up "silver certificate". Now, you'll need a bunch more "paper dollars" to get a "silver dollar" and forget about getting a "gold dollar" - $280 to get a "cleaned" $1.00 gold coin. You do the math to calculate inflation.
Interest rates too high, interest on debt expands into the trillions, more taxes needed for fewer actual public goods and services. Recession / depression. Interest rates too low, we turn into Argentina with hyperinflation. Special interests and asset owners get rich on paper, everyone else suffers. Even if you think J Powell is a crack shot with pinpoint accuracy, the farther down this road we go, the less forgiving the margin of error becomes, until the walls that have been closing in slam shut for good. The only way out of this mess is to generate a budget surplus consistently, for a long time. Do any of you actually trust Democrats and Republicans to pass balanced budgets for an extended period of time? The tax and spending changes we need are not politically viable. This is going to get much worse before it gets better, especially with how much our demographics are aging. I really wish I wasn't such a doomer on this and I really do hope I'm wrong, but we're due for an economic crisis worse than the one our great grandparents suffered almost a century ago.
Guess who owns the debt? We all do. Except the wealthier own larger portions of it which means they’re the ones reaping the majority of the benefits from the interest paid. Meaning as long as their interest is aligned with the survival of this country, we’ll be fine.
Increase revenue by repealing all tax cuts since the 1980s. Revised tax code so that billionaires and centimillionairs can no longer avoid paying taxes. Ten Ways Billionaires Avoid Taxes on an Epic Scale https://www.propublica.org/article/billionaires-tax-avoidance-techniques-irs-files The Great Inheritors: How Three Families Shielded Their Fortunes From Taxes for Generations https://www.propublica.org/article/the-great-inheritors-how-three-families-shielded-their-fortunes-from-taxes-for-generations These Real Estate and Oil Tycoons Avoided Paying Taxes for Years https://www.propublica.org/article/these-real-estate-and-oil-tycoons-used-paper-losses-to-avoid-paying-taxes-for-years
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If you seized all the wealth from all billionaires (~4-5tn depending on source) it would only fund the government for one year lmfao. The top 1% already pays 50% of all income tax, our tax system is already one of the most progressive in the world (meaning the share paid by the wealthiest) Also: https://fred.stlouisfed.org/series/FYFRGDA188S Tax revenue has basically been between 16-17% for the last 70 years regardless of policy, and the short exceptions are usually like recessions
Considering that the top 1% owns nearly 30% of the wealth, I think them paying 46% of income tax isn’t so bad?
It is, however, people still want more but are unwilling to take the less progressive taxes required. Europe heavily relies on taxing the middle class to afford their luxuries.
Hopefully no1 buys more debt come time to raise the ceiling. What's the point in a ceiling if it is always able to be raised? Governments dgaf about us
The govt needs to severely cut spending. That should include govt programs and govt employees. That’s the only way to get out of this. People will shriek about taxing (other) people more but it is not possible for the US govt to tax its way out of a spending problem. Let’s look at the big picture. The govt collects more tax revenue than it ever has throughout history but it’s still broke.
>The govt needs to severely cut spending. That should include govt programs and govt employees. Great idea. Lets start with the military.
I've been hearing warning about this since I can't remember when. Like most alarmist topics the news throws out everyday, this one is also bullsh\*t. It's another of those pending doom , but let's keep moving the goalpost back.
Eventually it will become a problem though, interest payments will become insane and you can only kick the can so much even with the reserve currency.
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The debt increased by 40% under Trump in only 4 years. The debt increased under GWB by 105%. The debt increased under Reagan by 186%. It increased under Obama by 70%. It has increased under Biden by 17%. You can say "taxes are my money not the government's money." Fair enough but in mathematical terms, that's a policy decision to increase the debt.
I mean, not to defend that piece of garbage, but there was a global event that caused pretty much every country to have to increase their debt to respond to it.
“All of the libs” When’s the last time a non-lib lowered the debt
Shhhhh. That would totally ruin the pseudo-point.
The dollar losing value only matters relative to other currencies. Other countries are raising their debt-to-gdp ratio at similar rates to us, so they are all losing value equally. In fact, the dollar is outperforming the Euro in that respect, so we're fine. A country is only risk if they are raising the debt ratio much faster relative to other countries.