Where is the US economy headed?

If you were a politician, cyclops, would you honestly have the guts to try that in one step, with economists telling you what could possibly happen, which might not be pretty? When marginal rates were higher coming out of WWII, it was a totally different world, and a totally different set of industrial circumstances in this country. Using a football analogy, we had an open field to run with little resistance, the opposition was outmanned and slow, and I don't think we have anywhere near the same advantages now.

And if you instituted the 60% marginal tax rate, how many more billion would be taken in this year, vs what we are doing now. I don't know how you compute it because you don't know what effect the economy will suffer.

In my opinion, the only way we crawl out of the economic hole even a little, is to grow ourselves out of it, give very low cost of living raises to government growth, entitlement programs, etc., in other words extended years of reduced government growth, coupled with a robust economic growth in the private sector. Socking people with much higher tax rates may be very counterproductive.

Yeah, McG, isn't it interesting that Clinton was able to show a surplus, then after Bush took over, all hell broke loose - literally "all hell," not only our deficit spending.

You can't have deficit spending forever unless you can get Americans to buy the debt. And they're not buying. So now your dependent on foreign countries. So much for American independence. We have to rely on someone else to pay our bills.

There's no evidence that our country can grow its' way out of debt. No historical evidence shows this happening to any country. It's a fiction that is invented by those who don't care about anything but paying low taxes themselves.

You say that socking people with high taxes 'may' be counterproductive. Well, there are a lot of things we do which 'may' be counterproductive, say, war in Iraq, but we do them anyways.

There's no doubt that raising the marginal tax rates will bring in more revenue. There's no evidence that in times in the past, when the tax rates were FAR higher, that our economy didn't grow. It did.

On one hand, we have a sure thing - raising taxes equals rising revenues. On the other, prognostications of doom if we do so from those who don't have any actual evidence showing that it's true. Not a difficult choice to make.

Cycloptichorn

This may surprise you, but I would consider a slight raise in conjunction with other measures to fix the problems of overspending, etc. I am not a fan of deficit spending, and I think we need to fix it, but all angles need to be considered, and spending is the primary problem. I would not favor raising it nearly as much as you propose, perhaps only about 5% or less, then track the results before determining the next step to further fix the problem.

We absolutely do not know that increased rates equal increased revenues. We can only make projections, and different economists have different projections, and I hope you would consider them all.

That's a sensible solution, as long as you are willing to face to components of reality:

First, that money needs to stop being stolen from the SS trust fund. We take about a 100 billion a year from that fund in order to make our deficit look smaller. Gotta stop.

Second, the various wars we are doing are all on deficit. They aren't even included in the budget. That has to be accounted for as well. So when you say 'cut spending,' military spending is a large part of that.

Cycloptichorn

Nope. We absolutely do know this. Historically, higher rates have led to higher revenues.

Cycloptichorn

Careful okie; I smell a little liberal sentiment here.

It doesn't matter what the income, it's the spending that creates deficits - just like the home budget.

I agree that everything is on the table, however what I view as priority may not be your priority, so we would have to just pound it out in the political process. I think defense spending is probably higher on my list than it may be on yours.

Wow, I agree with that. Some of the people with the highest incomes go bankrupt. It allows them to borrow more money than they could otherwise, and that is precisely what our government is doing.

So have lower rates.

And, you have described our current problem with cutting spending, to a T. Our political parties have different priorities.

I would point out that we could cut defense spending by about a third and still spend more then the top ten other countries combined. So there's fat to trim.

Cycloptichorn

I think there are several basic misconceptions afoot on this thread.

In the first place national debts are NOT eventually paid off in full, just as the debt of large corporations is generally never reduced to zero. The significant measures are debt as a fraction of assets and earning power on the part of corporations and debt as a fraction of GDP on the part of countries. From the perspective of optimizing economic growth for either the best level of debt is NOT zero.

Some years ago Canada had a very high accumulated national debt as a % of GDP. They wisely reduced the debt level through a combination of budget surpluses (that marginally reduced accumulated debt) and economic growth that reduced the significance of the remaining debt.

As a % of GDP the U.S. debt is decidedly not high relative to that of other major countries. One can indeed make a case that a continuation of chronic large deficits could eventually get us into trouble. However, interestingly the adverse efffects of high government spending involve both the deficits it produces and the generally sclerotic economic effects of government activity of almost any kind. The latter is very often the most serious adverse effect, slowing economic growth and thereby raising the relative significance of existing debt. The point here is that these are complex processes and it is definately wrong to say that limiting government spending will not yield better economic growth -- the converse indeed often happens.

I don't think there is any general solution to the problems of promoting beneficial economic activity and,at the same time, ensuring that individual economic outcomes are "fair" or equitable by some standard. Socialist systems of forcing economic uniformity have unfailingly stifled economic productivity, yielding poverty for all, and very often an authoritarian elite class who guide the system, doing rather well for themselves in the process. Free market systems yield more economic activity and much higher average wealth. The problem, of course is that this is achieved at the expense of considerable economic inequity. Much, but not all, of this inequity is the result of better choices and harder work on the part of those who benefit. Some is simply luck and good fortune. Static societies with effective horizontal barriers tend to increase the effect od the undesirable latter factors.

I think that most agree that authoritarian socialism has been a huge failure economically, even without considering the huge restrictions to human freedom it entails. Some form of moderated, managed free market capitalism, coupled with representative government and durable, peaceful means for managing change, evolution and adaptation to new circumstances seems to be the answer. The issue here is that we (and most others) cant find general agreement of just what might be the appropriate level of moderation or management of the process. Hence the debate that goes on and on and on and...

No, they have not done so. Lower rates have lead to a lower overall level of returns then the same higher rates would have returned over the same time period.

As an example, Bush cut taxes significantly; and the economy started doing better, and tax revenues went up. But there's no evidence at all that the tax cuts are what lead to higher revenues. You are falling in to the trap of non-corollary statistics.

We can go into this in more detail, if you like. I have a plethora of information on this subject.

Cycloptichorn

We spend alot less percentage wise on defense than we have in past history. Our real problem is entitlement spending, cyclops, and I think we can potentially bankrupt the country through health care and social security, and we will if we don't find some realistic solutions to the above.

I couldn't agree with this more. There are benefits and drawbacks to both cooperation and competition; a robust economy will utilize aspects of both.

Cycloptichorn

I don't think it is profitable to rehash the Laffer curve. As I have previously said, I think rates are possibly below the peak, so slight increase in marginal rates might increase revenues, at the expense of a lesser increase in what would have happened in the economy of course, and that is another discussion. Remember, growth compounds, and if you depress growth slightly to enhance revenues in the short run, you also affect the prospects of revenues long term.

To summarize, you might get away with raising rates slightly, but raising them solely to solve this problem is a dead end road, It leads to stagnation and a very bad future economic picture. Just my opinion.

Thomas, where is your opinion on this?

I agree with georgeob's thesis posted above, but the US has a bigger problem than other countries because the US dollar is the primary currency for trade around the world. When any currency becomes the major trading currency in the world, something must "back it up." At one time, gold was the "back up" for the US dollar, but no longer. There's really nothing supporting the US dollar, and it's based entirely on "faith." There's not enough current and future products and services to support the US dollar now in circulation, but it continues to be the major currency without much support for it.

This is one of the major reason China and Japan are in a unenviable position with all their US bond holdings. As the dollar losses value, their bonds losses value as its been happening the past several months.

They can't afford to sell their bonds on the open market, because it'll flood the market and the supply will become greater than the demand; resulting in inflation; too much US dollars chasing limited goods and services.

It's a matter of time before the world marketplace realizes that the use of the US dollar is dangerous to their own economy.

I believe there is still time to correct this problem, because the Euro is in no better shape.

We can't continue to print money and hope all the problems will disappear. There are limits to deficit spending.

I missed George's post before my last post or two, but went back and read it. I agree with much of it. In regard to the government being part of the economy, so that decreasing spending will affect the economy, that is true, as I think George is pointing out, however if we sincerely believe that free market activity is more efficient, as history has shown, we are wise to suppress government as a percentage of the economic activity and the end result should be a more efficient economy overall. It might take a bit of time for the equilibrium to occur after changes are made.

Also, in a free market, there is inequity, true, but I think what history has shown is that even the lowest on the ladder live better than the average citizen in socialist or communist countries. They can brag that everyone is equal, except they don't mention the governing elite, but if the equal is worse off than anybody in a free market system, then it is a failure. I would hope that we would not bow at the alter of shared misery.

One of the main points I keep bringing up here is that it is destructive and counterproductive to keep criticizing the rich, and the corporations, and the people that generate much of the wealth, as we should not go down the road of the class envy game. That game never bears any good fruit. We should instead be grateful for the wealth enjoyed here, as that wealth tends to bring everybody up over what they would be otherwise.

In regard to the debt, if the debt is owned by U. S. citizens, that seems preferable to owing the debt offshore, and am I wrong to think the percentage offshore is growing?