Will a failure to raise the US debt ceiling force a default?

[Vanadium 50]

I just made a very interesting plot - it's Federal revenues and expenditures (on-budget), vs. time, scaled by population and inflation. There are several periods.

From 1900-WW1, both are flat at about $160 (2009 dollars) per person. At WW1, there's a slight bump in revenues and a bigger jump in expenditures, and it settles down to slight surplus at twice the pre-WW1 spending. During the New Deal, spending doubles and revenues go up by perhaps 35 or 40%.

WW2 is a huge bump in revenue ($4000 per person) and an even larger one in expenditures $8000). After that, things return briefly to the $2000 range, and then increase linearly to $5000 by 1975.

In 1975, revenues and spending take two different paths. Spending grows to about $8000 by 1985 or so, and holds steady for 15 years. It then grows linearly to about $11,000 by last year. Revenues take a more chaotic path, basically tracking the stock market - the booms and busts are clearly visible.

The lesson I take from this is that it's an unintended consequence of having most of the income taxes paid by the wealthiest Americans. They get a relatively large fraction of their income from stocks, either through dividends or capital gains. When the market performs well, the government gets more money. The downside of this is when the market crashes and the government wants to spend more, that's precisely when they are broke(est).

 

[talk2glenn]

The Republican first cut at spending reduction came out today. There are serious big number cuts here. Not enough, but its a start.
http://rsc.jordan.house.gov/UploadedFiles/Spending_Reduction_Act--TWOPAGER.pdf

What's amusing is that it doesn't go nearly far enough, and still doesn't have a snowballs chance in hell of passing the Senate.

The Republicans probably intend to condition lifting the debt ceiling on acceptance of these terms. Curious to see if that's enough to get it through.

My objections include the fact that they mostly left defense untouched.

Defense is a pittance and frankly doesn't need to be cut; it exists as an issue only for the left to attack Republican fiscal bona fides. The Democrats largess over the past 4 years was focused almost in whole on non-defense discretionary, and this is where most of the cuts should come from.

I agree with Gates that the size of the armed forces needs to be scaled back as we wind down our ongoing commitments in Iraq and Afghanistan, but programs should be protected. It's purely a function of prestige: the threat of the American military is sufficient to keep the world stable. A rising China threatens that stability. Cutting defense spending now would aggravate the problem.

What they really need to address are the entitlements. No Democrat that I can name at this point, will back this. Heck, even when Republicans held every chamber, they couldn't get Social Security reform out the gates, let alone to a vote, and only 2 Democrats voted to repeal an unpopular entitlement in the House (healthcare reform). Definitely will take another election cycle, at the least, before we see real progress, and when it happens it will probably cost the Republicans quite a bit politically.

 

[mheslep]

What's amusing is that it doesn't go nearly far enough, and still doesn't have a snowballs chance in hell of passing the Senate.

Maybe not. Many Senate Democrats are up for election in '12, and even now the Senate only needs four Democratic votes. As we were all educated in the health care debate, only 51 votes are needed for 'reconciliation' of budget matters.

Defense is a pittance and frankly doesn't need to be cut;

$782B (2009), more than the rest of the entire world combined, seven times China, and the largest item in the budget is a pittance?

it exists as an issue only for the left to attack Republican fiscal bona fides. The Democrats largess over the past 4 years was focused almost in whole on non-defense discretionary, and this is where most of the cuts should come from.

Er, partially agree. The increase in civilian salaries and numbers also applied to the Defense Department. Also, Democratic congress persons suddenly become defense hawks when it comes to keeping defense programs in their districts. The Boeing tanker program is a good example. Washington state's senators Cantwell and Murray would vote to invade Vancouver if they thought they it would guarantee some more Boeing military sales.

I agree with Gates that the size of the armed forces needs to be scaled back as we wind down our ongoing commitments in Iraq and Afghanistan, but programs should be protected. It's purely a function of prestige: the threat of the American military is sufficient to keep the world stable. A rising China threatens that stability. Cutting defense spending now would aggravate the problem.

I don't care to pay the federal government for prestige. Let the Europeans pay for some. One lesson from 911 is that spending a lot money on defense doesn't guarantee security. For that matter spending a lot of money on anything doesn't guarantee it's success. See public education.

What they really need to address are the entitlements.

Agreed

 

[WhoWee]

$782B (2009), more than the rest of the entire world combined, seven times China, and the largest item in the budget is a pittance?

Er, partially agree. The increase in civilian salaries and numbers also applied to the Defense Department. Also, Democratic congress persons suddenly become defense hawks when it comes to keeping defense programs in their districts. The Boeing tanker program is a good example. Washington state's senators Cantwell and Murray would vote to invade Vancouver if they thought they it would guarantee some more Boeing military sales.

There are savings to be had in defense and every other "sacred cow".

 

[mheslep]

The lesson I take from this is that it's an unintended consequence of having most of the income taxes paid by the wealthiest Americans. They get a relatively large fraction of their income from stocks, either through dividends or capital gains. When the market performs well, the government gets more money. The downside of this is when the market crashes and the government wants to spend more, that's precisely when they are broke(est).

Sounds right.

 

[Al68]

This is not accurate.

Mandatory spending is so called because it is required by law. No matter what, the government must spend this money, unless the law is changed.

There is no such requirement for interest payments...

You say my post is not accurate, yet say nothing that explains how so. And you even say "unless the law is changed", which means "not mandatory" by a reasonable definition.

The obligation to pay interest on the debt can't be avoided with a change in law, because they are not owed simply because some law says so. That's a reasonable definition of mandatory.

Using the word "mandatory" to refer to entitlements but not debt obligations is absurd.

 

[mheslep]

What they really need to address are the entitlements.

Agreed

Here's an opportunity. The current ACA health care law has large Medicare cuts that just went into effect - means testing premiums, cuts to hospitals, and the like. The Republicans should include the same ones, at a minimum, in their separate cuts package. Ex:

Freeze the threshold for income-related Medicare Part B premiums for 2011 through 2019, and reduce the Medicare Part D premium subsidy for those with incomes above $85,000/individual and $170,000/couple. (Effective January 1, 2011)

http://www.kff.org/healthreform/upload/8061.pdf

I don't know the savings figures for these actions, but anything that touches Medicare is worth billions. Political cost should be low too.

 

[WhoWee]

How will freezing the threshold for income-related Medicare Part B premiums for people above $85,000 help with the deficit? The percentage of people paying extra premiums MIGHT be fewer than the number of people receiving Part B subsidies. I'll try to find some stats.

 

[mheslep]

How will freezing the threshold for income-related Medicare Part B premiums for people above $85,000 help with the deficit? The percentage of people paying extra premiums MIGHT be fewer than the number of people receiving Part B subsidies. I'll try to find some stats.

I'm focused on this phrase: "reduce the Medicare Part D premium subsidy". That is cut in spending, though I don't know how much.

 

[WhoWee]

I'm focused on this phrase: "reduce the Medicare Part D premium subsidy". That is cut in spending, though I don't know how much.

I'll try to find a breakdown. The last I looked, the average cost of an MAPD was $849.50 per month - about $10,000 per year. My guess is the PDP component is $50 to $100 per month of the total.

 

[Vanadium 50]

Here's an opportunity. The current ACA health care law has large Medicare cuts that just went into effect - means testing premiums, cuts to hospitals, and the like. The Republicans should include the same ones, at a minimum, in their separate cuts package.

If only it were so easy.

According to the http://articles.chicagotribune.com/...icare-formula-medicare-and-medicaid-services", Medicare pays $56 for a basic office visit that may last up to 15 minutes. Blue Cross pays $65 for the same visit, Cigna pays $75 and the sticker price is $95 for uninsured patients.

Without the "doc fix", that $56 becomes 23% smaller, or $43. The cost-cutting plan essentially says that the government will only pay less than half-price. A predictable consequence of this is that some doctors will stop taking Medicare/Medicaid patients. If the only negotiation allowed is "take it or leave it", some doctors will choose "leave it".

Or have the choice forced upon them. http://www.cms.gov/ActuarialStudies/Downloads/S_PPACA_2010-01-08.pdf", "roughly 20 percent of Part A providers would become unprofitable within the 10-year projection period".

Congress needs to understand that if they pay less, they will get less.

 

[talk2glenn]

You say my post is not accurate, yet say nothing that explains how so. And you even say "unless the law is changed", which means "not mandatory" by a reasonable definition.

I won't address this sillyness further, except to say that in the real world (outside of an undergraduate philosophy classroom) there are rules, and those rules must be followed. Amongst those rules is that the United States Government must obey the law. It is not reasonable for you or it to say, "well, the law might change, therefore its not mandatory".

Would you argue that paying taxes and not murdering your neighbor are not "mandatory" behaviors because, gosh, the law might change? Of course not. It is no more reasonable in this case.

Mandatory expenses, by definition, refer to expenses which are required by law and not discretionary. This is not something I made up - it is accepted prose in every discussion about differentiable categories of government spending by reasonable people. Further, the original question was what categories of expenses would have to come first, under the law. The answer is mandatory programs, like entitlements, with the leftover funds going to discretionary programs, like interest payments (whether you agree with this order or not is irrelevant to the point).

$782B (2009), more than the rest of the entire world combined, seven times China, and the largest item in the budget is a pittance?

Keep in mind that the DOD regards China's actual defense expenditures to be about double the published figures, and that China (unlike the United States) has relatively tiny operational and maintenance costs. A large chunk of American payments go to personnel costs, followed by procurement and maintenance costs on existing equipment. The leftover goes to development and procurement of new weapons systems, and isn't all that much. From Wikipedia:

Components Funding Change, 2009 to 2010
Operations and maintenance $283.3 billion +4.2%
Military Personnel $154.2 billion +5.0%
Procurement $140.1 billion −1.8%
Research, Development, Testing & Evaluation $79.1 billion +1.3%
Military Construction $23.9 billion +19.0%
Family Housing $3.1 billion −20.2%
Total Spending $685.1 billion +3.0%

Put that into perspective vis a vis China's true budgetary outlays of approximately $160B, a significantly larger chunk of which goes to developing and procuring new weapons systems relative to the United States, and you're suddenly looking at a better relative picture. Again according to the DOD, China is spending about 50% of its budget on procurement, and 15% on R&D - much higher ratios than in the United States.

Cut some of those operational and personnel costs, I agree, but these are much harder to go after politically than, say, a new fighter plane. We are in real danger of losing our generational lead on the Chinese. We may outnumber them in number of units and quality of operators, but as a matter of international prestige, the damage is in Chinese technical parity regardless of practical parity. The loss in clout to the Chinese will damage our ability to get what we want on the international stage (Iran, N. Korea, and Taiwan, for starters); this is the nature of real politik.

I don't know the savings figures for these actions, but anything that touches Medicare is worth billions. Political cost should be low too.

http://crfb.org/blogs/updated-health-care-charts

See there for the numbers. Specifically, the new Medicare taxes are projected to raise $54B in revenue, while the cuts to Medicare are projected to save $544B. The trouble is, outside the new payroll tax and the cuts to Medicare Advantage (which is an example of a program within Medicare we should be putting greater emphasis on, not cutting), they are all hypothetical and promised cost reductions based on promises of Congressional and bureaucratic action that may or may not arise but are independent of the Affordable Care Act. The doc fix, which Vanadium talks about, is a great example of this.

The point being, the Act itself doesn't cut much of anything. Congress just instructed CBO to consider separate government cutting action when scoring the budgetary impacts of ACA. Repeal the Act, and implement the cuts anyway (where reasonable and prudent), and we've got the savings minus the cost of this massive new entitlement.

 

[Al68]

I won't address this sillyness further, except to say that in the real world (outside of an undergraduate philosophy classroom) there are rules, and those rules must be followed. Amongst those rules is that the United States Government must obey the law.

You're aware that the situation we're specifically referring to is one in which paying entitlements would violate, not uphold, the (debt ceiling) law? The law as a whole requires that entitlements be paid only up to the debt ceiling limit.

Paying the interest first only results in reducing the amount that can be legally spent on entitlements without violating the debt ceiling law. Paying the interest first doesn't itself violate any law. In fact, paying interest on the debt when due without assurance of the future ability to pay entitlements (because of debt limit) is routine.

 

[Vanadium 50]

Amongst those rules is that the United States Government must obey the law.

Yes, but Congress makes the law.

The legal theory is that a new law that is inconsistent with an old law supersedes it.

 

[mheslep]

If only it were so easy.

According to the http://articles.chicagotribune.com/...icare-formula-medicare-and-medicaid-services", Medicare pays $56 for a basic office visit that may last up to 15 minutes. Blue Cross pays $65 for the same visit, Cigna pays $75 and the sticker price is $95 for uninsured patients.

Without the "doc fix", that $56 becomes 23% smaller, or $43. The cost-cutting plan essentially says that the government will only pay less than half-price. A predictable consequence of this is that some doctors will stop taking Medicare/Medicaid patients. If the only negotiation allowed is "take it or leave it", some doctors will choose "leave it".

Or have the choice forced upon them. http://www.cms.gov/ActuarialStudies/Downloads/S_PPACA_2010-01-08.pdf", "roughly 20 percent of Part A providers would become unprofitable within the 10-year projection period".

Congress needs to understand that if they pay less, they will get less.

The means test I referred to is not the doc fix; they're two different things and possible sources of cuts. Now that the ACA has already said that it will at some point do means testing, the Republicans have the political cover to go ahead and do it on their own.

 

[mheslep]

Keep in mind that the DOD regards China's actual defense expenditures to be about double the published figures,

Ok, US DoD budget is 4.5X greater than China's using the US DoD estimate.

and that China (unlike the United States) has relatively tiny operational and maintenance costs.
A large chunk of American payments go to personnel costs, followed by procurement and maintenance costs on existing equipment.

Then the Chinese will suffer, relative to the US, in operational and maintenance quality. Yes the US is spending substantially on ongoing wars, but one of the inevitable consequences is that the US now has by far the most combat experience in the world. Also, the US has a volunteer, highly professional military while the Chinese conscript troops. A volunteer military is more expensive per pair of boots to run, but much, much more motivated and effective.

The leftover goes to development and procurement of new weapons systems, and isn't all that much. From Wikipedia:

Components Funding Change, 2009 to 2010
Operations and maintenance $283.3 billion +4.2%
Military Personnel $154.2 billion +5.0%
Procurement $140.1 billion −1.8%
Research, Development, Testing & Evaluation $79.1 billion +1.3%
Military Construction $23.9 billion +19.0%
Family Housing $3.1 billion −20.2%
Total Spending $685.1 billion +3.0%

Put that into perspective vis a vis China's true budgetary outlays of approximately $160B, a significantly larger chunk of which goes to developing and procuring new weapons systems relative to the United States, and you're suddenly looking at a better relative picture. Again according to the DOD, China is spending about 50% of its budget on procurement, and 15% on R&D - much higher ratios than in the United States.

Cut some of those operational and personnel costs, I agree, but these are much harder to go after politically than, say, a new fighter plane.

Why? Why can't the US cut one or two air craft carriers?

We are in real danger of losing our generational lead on the Chinese.

I'm familiar with earlier periods in US history where the US military was gutted of resources and ignored - after WWI, again after WWII - lessons to be learned from that history. But the current situation is not comparable in the slightest to those eras. So if and when the Chinese start spending twice what the US spends, call me in thirty years.

We may outnumber them in number of units and quality of operators,

Yes! US: 12 nuclear aircraft carriers, with half a century of experience refining the sophisticated ballet of naval aviation. China: 0. Then there's the military spending (and ongoing cooperation) of US allies in the Pacific - Australia, Japan, S. Korea, etc. Chinese allies: 1 (NK). BTW, if anyone needs to be especially worried about China militarily it is those same Pacific countries, not the US.

but as a matter of international prestige, the damage is in Chinese technical parity regardless of practical parity. The loss in clout to the Chinese will damage our ability to get what we want on the international stage (Iran, N. Korea, and Taiwan, for starters); this is the nature of real politik.

Well here you've left the realm of quantifiable military advantage and moved into political hand waving. In what sense does the US restrain China politically now? What prestige is granted by a $14 trillion debt?

On to entitlement spending cuts:

[...]
The point being, the Act itself doesn't cut much of anything. Congress just instructed CBO to consider separate government cutting action when scoring the budgetary impacts of ACA.

Agreed, exactly so.

Repeal the Act, and implement the cuts anyway (where reasonable and prudent), and we've got the savings minus the cost of this massive new entitlement.

Agreed, that was my point above [highlights mine]. Even if ACA didn't make the cuts, by writing down intentions it provides political cover to carry them out. And above I was specifically drawing attention to the means testing of Medicare beneficiarys in ACA, not the doc fix.

 

[mugaliens]

Ok, US DoD budget is 4.5X greater than China's.

That.

Actually.

Says.

Loads.

Huge.

Loads.

Scratching my head, too.

 

[PhilKravitz]

2007: $2.7 trillion. 2010 spending is $3.7 trillion.

Data tables at the bottom:
http://www.usgovernmentspending.com...tack=1&size=m&title=&state=US&color=c&local=s

Will the jump up in the next 3 years be
1) linear
2) geometric
3) exponential
?

 

[Vanadium 50]

That. Actually. Says. Loads.

I'd be interested in what you think that says. The US has 1.4M people in its military. China has 2.2M. (I'm not counting the paramilitary arms of the PLA). So the first conclusion I would draw is that "the US pays its soldiers 7x as much".

 

[WhoWee]

I'd be interested in what you think that says. The US has 1.4M people in its military. China has 2.2M. (I'm not counting the paramilitary arms of the PLA). So the first conclusion I would draw is that "the US pays its soldiers 7x as much".

Isn't that in line with other wage comparisons US vs China?

 

[talk2glenn]

I'd be interested in what you think that says. The US has 1.4M people in its military. China has 2.2M. (I'm not counting the paramilitary arms of the PLA). So the first conclusion I would draw is that "the US pays its soldiers 7x as much".

I'm curious too. It's like my point about the differences in how the money is spent in the US relative to China sailed completely over their heads.

Let me help by being more explicit.

China is spending approximately $80B per year on procurement, using DOD estimates. This means the United States is only spending 1.75x as much as the Chinese on buying new weapons. Given the current growth rates in Chinese military spending, relative to the pretty constant spending rates in the US on procurement, they will catch up to us in procurement spending in about 5 years. This assumes no cuts in procurement spending.

Likewise China is spending approximately $24B on research and development of new weapons, again using the DOD estimates. This is approximately 1/3 the published R&D budget of the United States, granted, but still much less than 4.5x and much much less than 7x.

 

[WhoWee]

I'm curious too. It's like my point about the differences in how the money is spent in the US relative to China sailed completely over their heads.

Let me help by being more explicit.

China is spending approximately $80B per year on procurement, using DOD estimates. This means the United States is only spending 1.75x as much as the Chinese on buying new weapons. Given the current growth rates in Chinese military spending, relative to the pretty constant spending rates in the US on procurement, they will catch up to us in procurement spending in about 5 years. This assumes no cuts in procurement spending.

Likewise China is spending approximately $24B on research and development of new weapons, again using the DOD estimates. This is approximately 1/3 the published R&D budget of the United States, granted, but still much less than 4.5x and much much less than 7x.

In the spirit of the OP - perhaps we (US) should default on debt to China - now - while we have the military advantage? On the other hand, the corporate investors in China would have to take some very large write-downs.

 

[AlephZero]

I'd be interested in what you think that says. The US has 1.4M people in its military. China has 2.2M. (I'm not counting the paramilitary arms of the PLA). So the first conclusion I would draw is that "the US pays its soldiers 7x as much".

The comparative numbers don't mean much. China could have 22M or 220M people in its military within a week if it felt the need, because it doesn't have to waste time pretending to be a democracy.

Sure, they wouldn't be very well armed, but neither are the Taliban, and the high tech US war machine doesn't seem to be making much progress against them.

In a "boots on ground" conflict, China wins. They have more boots than anybody else.

 

[WhoWee]

The comparative numbers don't mean much. China could have 22M or 220M people in its military within a week if it felt the need, because it doesn't have to waste time pretending to be a democracy.

Sure, they wouldn't be very well armed, but neither are the Taliban, and the high tech US war machine doesn't seem to be making much progress against them.

In a "boots on ground" conflict, China wins. They have more boots than anybody else.

To stay on topic - this also emphasizes the potential of the Chinese manufacturing base - they have unused capacity. While the US further saddles itself with entitlement spending and deficits - China expands and strengthens economically.

 

[mugaliens]

To stay on topic - this also emphasizes the potential of the Chinese manufacturing base - they have unused capacity. While the US further saddles itself with entitlement spending and deficits - China expands and strengthens economically.

Smart people! I might have to take up Mandarin...

 

[mheslep]

This might be a pattern for state governments to follow soon.

New York State Takes Control of Nassau’s Finances

UNIONDALE, N.Y. — A state oversight board has seized control of Nassau County’s finances, saying the wealthy and heavily taxed county had nonetheless failed to balance its $2.6 billion budget despite months of increasingly ominous warnings.

http://en.wikipedia.org/wiki/Nassau_County,_New_York" is the 10th richest county in the US, 1st in New York state. Apparently the recently elected county executive attempted to renegotiate contracts with the unions, but they refused. Adios to one and all now.

 

[WhoWee]

The morning after...
http://www.cbsnews.com/stories/2011/01/26/national/main7285697.shtml

"(CBS/AP) Washington - The day after the federal deficit was a central theme to both President Obama's State of the Union address as well as the GOP's official response to it, the Congressional Budget Office released new figures underscoring the urgency of the issue.

A new estimate predicts the federal budget deficit will hit almost $1.5 trillion this year, a new record. "

 

[talk2glenn]

So the United States could close the Pentagon and disband the entire armed forces tomorrow, and the Federal deficit would be reduced by... about 45%. But military spending is driving the deficits, right?

For that matter, the United States could close the entire federal government, and still be running a deficit.

The problem is entitlement programs.

 

[WhoWee]

Would you ever consider it a long term strategy to run your household on 40% borrowed funds - knowing that interest rates are being suppressed artificially?

My bold
http://www.msnbc.msn.com/id/41272983/ns/politics-more_politics/

"The eye-popping numbers mean the government will continue to borrow 40 cents for every dollar it spends.

The new Congressional Budget Office estimates will add fuel to a raging debate over cutting spending and looming legislation that's required to allow the government to borrow more money as the national debt nears the $14.3 trillion cap set by law. Republicans controlling the House say there's no way they'll raise the limit without significant cuts in spending, starting with a government funding bill that will advance next month. "

 

[Al68]

For that matter, the United States could close the entire federal government, and still be running a deficit.

The problem is entitlement programs.

They wouldn't be if the agencies that write and send the entitlement checks were closed. "Mandatory" or not, unlike a failure to make interest payments on the debt, failure to pay entitlements would reduce the deficit.

If we stay on the track we're on, our grandchildren will have no choice but to refuse to feed the beast, and the federal government will have to declare bankruptcy and default on most or all of its debt. And I consider the consequence that the federal government would no longer be trusted enough to be able to borrow an advantage, not a disadvantage.

For far too long, too many of us have bought into the silly notion that private individuals are under some moral obligation to fund the promises of power hungry politicians. We are not. We are not. We are not.

And what's really crazy about entitlement programs like Social Security is that Democrats refuse to even consider phasing it out as we know it. Coercing people into a ponzi scheme against their will isn't some short term plan pending a permanent solution, it is their permanent solution for retirement security. They can make semantic objections to the phrase "coercing people into a ponzi scheme against their will" all they want, but it doesn't change the fact that that's exactly the long term solution they insist on.

 

[WhoWee]

They wouldn't be if the agencies that write and send the entitlement checks were closed. "Mandatory" or not, unlike a failure to make interest payments on the debt, failure to pay entitlements would reduce the deficit.

If we stay on the track we're on, our grandchildren will have no choice but to refuse to feed the beast, and the federal government will have to declare bankruptcy and default on most or all of its debt. And I consider the consequence that the federal government would no longer be trusted enough to be able to borrow an advantage, not a disadvantage.

For far too long, too many of us have bought into the silly notion that private individuals are under some moral obligation to fund the promises of power hungry politicians. We are not. We are not. We are not.

And what's really crazy about entitlement programs like Social Security is that Democrats refuse to even consider phasing it out as we know it. Coercing people into a ponzi scheme against their will isn't some short term plan pending a permanent solution, it is their permanent solution for retirement security. They can make semantic objections to the phrase "coercing people into a ponzi scheme against their will" all they want, but it doesn't change the fact that that's exactly the long term solution they insist on.

We can label this post OPINION - my opinion - please.

I have to give the politicians more credit than you Al. I'll cite the recent expansion of Medicaid and the passing of "healthcare reform". These actions cemented the bonds between Medicare, Medicaid, Social Security, the Medical industry, and the Government.

The expansion of Medicaid is an unfunded mandate - a burden on the states. The Federal Government is also responsible for a portion. However, the states can't print money and won't be able to chase an increasing interest rate. When the states begin to default - the Federal Government will either have to bail them out or oversee their restructuring. This might lead to a further transfer of power away from the states to the (ever-expanding) Federal Government.

Even if the debt ceiling is not increased - the Medicaid expansion will continue at the state level - it's like a balloon payment - and like every other bubble - it will pop.

Again, IMO.

 

[PhilKravitz]

The IMF says that in order to close the gap between projected future liabilities and projected future revenues a 14% of GDP tax increase would be needed. That is federal tax goes from 14.9% of GDP (current level) to 28.9% of GDP. So. I expect tax increases and no default.

 

[Al68]

The IMF says that in order to close the gap between projected future liabilities and projected future revenues a 14% of GDP tax increase would be needed. That is federal tax goes from 14.9% of GDP (current level) to 28.9% of GDP. So. I expect tax increases and no default.

The problem is that no realistic tax policy would achieve that. That kind of (effective) federal tax rate is not only far above the point of diminishing returns, it would drastically reduce GDP, making the government's problem worse, not better. And that's not even considering the damage to the rest of the economy, the part of it that isn't government. The part of it that not only pays government's bills but has its own bills that some of us think are rather important. The part of it that constitutes the overwhelming majority of the country.

 

[mheslep]

The IMF says that in order to close the gap between projected future liabilities and projected future revenues a 14% of GDP tax increase would be needed. That is federal tax goes from 14.9% of GDP (current level) to 28.9% of GDP. So. I expect tax increases and no default.

The US government has failed to collect more than 20% of GDP in revenues in modern times, and not more than 19% for more than very short periods. That includes times when income tax rates on the top bracket were more than 90%. Taxes will not, can not fix this federal deficit problem.

 

[PhilKravitz]

Taxes will not, can not fix this federal deficit problem.

Are you suggesting a 14% of GDP cut in federal spending? Roughly half of their spending.