Taxes and Spending for Beginners

By James Kwak

Over the long term, we are projected to have large and growing federal budget deficits. Assuming that is a problem, which most people do, there seem to be two ways to solve this problem: raising taxes and cutting spending. Today, the political class seems united around the idea that spending cuts are the solution, not tax increases. That’s a given for Republicans; Paul Ryan even proposes to reduce the deficit by cutting taxes. But as Ezra Klein points out, President Obama and Harry Reid are falling over themselves praising (and even seeming to claim credit for) the spending cuts in Thursday night’s deal. And let’s not forget the bipartisan, $900 billion tax cut passed and signed in December.

The problem here isn’t simply the assumption that we can’t raise taxes. The underlying problem is the belief that “tax increases” and “spending cuts” are two distinct categories to begin with. In many cases, tax increases and spending cuts are equivalent — except for the crucial issue of who gets hurt by them.*

Social Security is probably the simplest example of this equivalence. The Social Security Trust Fund is scheduled to be exhausted around the late 2030s, but from that point the program’s revenues (from the payroll tax) will be sufficient to pay something like 75 percent of currently scheduled benefits for several decades.

So, you might say, we have two ways to fix this: tax increases (either increase dedicated taxes or take money from general revenues, which will require raising some other tax) or benefit reductions. Needless to say, most Social Security proposals, such as that put forward by the recent deficit commission, largely involve benefit reductions, although they also include modest increases in the payroll tax.

Plan A would simply be to cut benefits across the board by 25 percent starting in the late 2030s, so the amount being paid out equals the amount coming in from payroll taxes. This looks like a spending cut — we’re closing the fiscal gap by reducing spending — so Republicans and moderate Democrats should like it.

What if, instead, we leave benefits exactly where they are and impose a 25 percent tax on Social Security benefits? This looks like a tax increase, where we’re closing the fiscal gap by increasing taxes, meaning “bigger government” (cue the charges of “socialism”). But this tax increase is equivalent in every way to the spending cut above; it’s just another way of framing Plan A.

If a 25 percent across-the-board benefit cut is the “conservative” solution, then the “liberal” solution, Plan B, is to increase the payroll tax by 33 percent, from 12.4 percent to about 16.5 percent.** This is harder to see as a spending cut, but for most people it is equivalent to a spending cut. We pay more during our working years and get back the same amount when we retire; since cash is cash, this is equivalent to paying the same amount while working and getting back less in retirement.

In short, both Plan A and Plan B can be broken down into two components: (1) keeping currently scheduled benefits intact and (2) increasing taxes on someone to pay for it. The difference between them has nothing to do with cutting spending or raising taxes — it has to do with whose taxes get increased.

Under Plan A, we are imposing a tax on seniors equivalent to 25 percent of their Social Security benefits. This is a regressive tax because the richer you are, the smaller Social Security is as a component of your income. We are also raising all of the revenue from seniors, so it’s a large tax increase on a small base.

Under Plan B, by contrast, we are imposing an incremental tax on all wage earners equivalent to 4.1 percent of their wages. This is still slightly regressive because of the cap on earnings subject to the payroll tax, but it’s a lot less regressive than the tax in Plan A. It’s also a small tax levied on a broad base, so it is less of a shock to individual households.***

Now, there are still valid arguments to be made in favor of Plan A. You could argue that increasing the payroll tax rate will hurt the economy because businesses won’t hire as many workers. This is true, but it’s also true that increasing taxes on seniors will hurt the economy because they will buy less. You could also argue that progressive taxes are bad and taxes should be as regressive as possible, and hence Plan A is better than Plan B. I wouldn’t agree with you, but you could argue that.

But you can’t argue that Plan A is better than Plan B because Plan A cuts spending and Plan B raises taxes. When you’re dealing strictly with cash going back and forth between households and the government, that distinction is nonsense.

Most Social Security proposals are more complicated to think about than Plan A and Plan B because they involve changes in the full benefit age, the benefit calculation formula, the index used for cost of living adjustments, and so on. But they all can be boiled down to the following: relative to current taxes and currently scheduled benefits, who gets more cash and who gets less cash? That’s all that matters — not whether they increase taxes or cut spending.

Now, Social Security is near one end of the spectrum of government programs because it deals entirely in cash. As we move toward the other end of the spectrum, “taxes” and “spending” become somewhat more meaningful concepts. At the other end of the spectrum we might have national defense, for example. If we aren’t bringing in enough revenues to pay for all the toys that Congress wants the Pentagon to have (which, in one of those quirks of American politics, is generally more toys than the Pentagon says it needs), there are significant differences between raising taxes and buying fewer toys. Since I lean noninterventionist in foreign policy (although I make no claim to be an expert there), I would have a strong preference for lower taxes and fewer toys.

In areas like national security, there is a valid debate to be had about whether the increased security we buy for the marginal dollar is really worth one dollar. That debate makes sense because money is being turned into something else — and that something else is something we wouldn’t necessarily buy ourselves. In Social Security, by contrast, the dollar isn’t being turned into anything, so you can’t have a debate about whether we’re underinvesting or overinvesting in dollars, like you can about missiles. (This is a bit of a simplification, since you can debate whether we are undersaving or oversaving, so it makes sense to look at the behavioral effects of changes in Social Security. But the absolute levels of inflows and outflows are still meaningless numbers.)

The Social Security example is important because all government programs are like Social Security to some extent. Cutting spending is equivalent to increasing taxes to the extent that it forces households to buy more of whatever they used to get from the government. Medicare is the obvious example, which I’ll discuss more in a future post.

* This post is largely an application of some concepts discussed in Daniel Shaviro’s excellent book, Taxes, Spending, and the U.S. Government’s March Toward Bankruptcy, which I’ve mentioned before. He discusses the issue of Social Security “taxes” and “spending” on pages 19-22.

** Actually, the real liberal solution would be first to remove the cap on the payroll tax, which would raise most but not all of the additional revenues necessary, but I’ll stick with a 33 percent increase in the payroll tax rate for simplicity.

*** You could argue that taxing workers and taxing retirees work out to the same thing, since workers now are retirees later. But that argument has two problems. First, it assumes that workers now will increase their savings enough to pay the 25 percent tax on their future retirement benefits, which flies in the face of everything we know about actual savings behavior. Second, because Social Security is itself progressive, increasing the tax rate on benefits is more regressive than increasing the payroll tax rate on wages.

43 responses to “Taxes and Spending for Beginners

  1. Why will the removal of the cap not solve the problem? I’m actually under the impression that simply raising it to 150k will solve the problem.

  2. Holden Pattern

    I think that w/r/t Social Security, you’re also missing something REALLY important. The reason that we were able to lower taxes on the wealthiest Americans because the SSRI trust fund is actually money that working Americans have loaned the government to hold until it’s needed. Under the unified budget that we’ve been using for years, that made us look nice and flush, which allowed the Republicans (with help from Grifter Greenspan) to pretend that they could cut taxes at the top end and it would be OK because the gummint shouldn’t have a surplus. (Remember Al Gore’s much-ridiculed lockbox idea, which would have ended this practice?)

    So cutting benefits back is dependent on the assumption that we’ll NEVER be able to tap the general revenue sources that we walked away from because we pretended that the SSRI trust fund created a surplus that we had to “give back”. We took money from working people (SSRI taxes) and handed it to the wealthy (reduced top-end income taxes), and now the wealthy are saying that they don’t ever want to have to change that calculus.

    See also fp3690’s question.

  3. @fp3690: In 2002, 85 percent of total wage earnings were under the cap. Even with the spike in inequality in the past decade, I’d be shocked if that figure were less than 80 percent today. If it is 80 percent, then eliminating the cap altogether would only increase revenues by 25 percent (20 / 80). So if the long term deficit after the trust fund goes away is 25 percent, then you have to increase revenues by 33 percent.

    Eliminating the cap right now would forestall trust fund exhaustion for longer, but it wouldn’t be enough for a steady-state solution.

  4. Why are we not discussing removal of the cap? It’s the quickest, most straightforward revenue-raiser. Let’s keep bringing it up over and over until the issue is addressed. It’s the no-brainer step toward sanity.

  5. @Holden: The point of the post was to illustrate the spending cut/tax increase equivalence in the context of a single program. For present purposes I’m just looking at the years after 2040, when the trust fund no longer exists.

    By that point all the money that the rest of the government borrowed from the trust fund will be paid back through some combination of drawing on general revenues (which could involve higher taxes) and issuing new debt to the public. As a political matter the trust fund surpluses may have made it easier to justify the Bush tax cuts, but since the trust fund will be redeeming its special Treasury bonds for cash, I don’t see how it is worse off than it would have been had it bought, say, German government bonds.

  6. Then why dont ppl see it that way? Ppl want you to take from someone else and give to them. They hear about some water fountain being built in Wyoming for $250,000 and think that money is such a financial waste that is stealing money from their SS, when really it’s inconsequential.

  7. Why don’t we just precipitate a massive crash that will get us hungry for steely leaders who will convince us that we need to learn to share better? Much less tedious than all the tinkering with the Goldbergian Rube device. But for this we need technocrats we can educate, and trust and monitor. Let’s get the special schools going now (unless we already have. Have we?). We learned our lesson — Capitalism doesn’t work. Power and wealth snowballs and wipes everything out. Ok, we get it. Let’s move on.

  8. A couple of years ago (before the last Presidential election), I performed a back-of-the-envelope calculation based on IRS data that indicated a revenue-neutral change to FICA would be to invert it by exempting all income less than $45,000 (an estimate – obviously to be refined) and remove the cap on income subject to this tax.

    This proposal makes perfect sense in the theory of income utility and of taxation, if tax equity is a critical parameter. It’s revenue neutral and is less regressive than the current SS tax regime, which is punitive. It also honors the social contract implied in the Declaration of Independence and U. S. Constitution (since ignored by the rich and powerful) that society flourishes collectively over the long term and the near term as long as political, economic and judicial fairness are perceived to be characteristic of that society.

  9. CBS from the West

    “But you can’t argue that Plan A is better than Plan B because Plan A cuts spending and Plan B raises taxes. When you’re dealing strictly with cash going back and forth between households and the government, that distinction is nonsense.”

    But we hear our politicians argue just that every day. Nonsense is the currency of the realm these days.

  10. James Kwak, you say “Over the long term, we are projected to have large and growing federal budget deficits. Assuming that is a problem, which most people do,”

    Is that what you assume? It is not what I assume. As far as I can tell, the United States still has a sovreign monetary system. Therefore, federal budget deficits and taxes are simply a social construct.

    Do you agree?

    Why is NO ONE TELLING THE TRUTH?

    THERE IS NO MONEY. IT’S JUST AN IDEA.

    It happens to be an idea that keeps the great majority of the population enslaved, and that is the tragedy of it.

    Mr. James Kwak: when educated people like you (and everyone else in your elite class–I only single you out because you are the author of this blog post) persist in LYING about the facts of money, monetary policy, the so-called federal deficit, and so forth…well, it is just a G.D. shame.

    Let’s get real. WHAT ARE YOU THINKING? People are catching on, Mr. Kwak. Why don’t you level with your readers? I must ask, who, exactly, are you afraid of?

  11. Sounds like the perfect time to ditch SS. If it is indeed solvent to 2030, why not give people a chance to bail. I’m doing much better with my individual retirement account than the federal government could ever hope to achieve, and I’m willing to let them keep what I’ve already been pinched for.

    All Ponzis eventually have to end because the charade can only be kept going for so long. And the charade ends when you have to either, 1) reduce benefits, or 2) raise payroll taxes on the later “investors.”

    And Uncle Billy, capitalism doesn’t work? It’s only produced the greatest lifestyle mankind has ever seen. It’s the free-riders who are sinking this country, not capitalism.

  12. Bayard Waterbury

    Your arguments are highly valid, James, because most of us understand that the push/pull between taxes and spending are both essentially bogus arguments, that is, until you get down into the details. The surest way to having a valid argument is to lay bare much of what is in the tax code. We had tax reform a couple of decades ago, and, since then, the code has morphed into an unsustainable morass which is completely impossible to deal with legislatively in any truly meaningful way. To bring about whatever the truly logical solution is for proper taxation, either high or low must begin with stripping out all of the built up crud. It’s kind of like the process of cleaning a 20 year old oven that has never been cleaned. It is a painstaking multi-part process. That is, unless we reformed by agreeing to structure a meaningful replacement for it, and then ditching the entire present code.

    The second issue I want to comment on is about military spending, which is truly one of the two six hundred pound gorillas in the room (the other is health care costs). The present level of spending as a percentage of GDP (or by any other measure is simply absurd, ridiculous and unsustainable. If we look closely at that behemoth, this year we will spend more than a trillion dollars for the protection of our “interests” by fighting where we shouldn’t be, and buying weapons systems still on the books for the Cold War days of thinking about what we need weapons for. In addition, we support over 800 bases overseas (800 times more than any other country), and are relied upon (as in Lybia) to be the only country to call upon when the world needs troops anywhere. We could spend less than 40% of our military budget, and be just as safe and secure AND protect our national “interests” (an absurdly overused phrase and excuse to continue the idiocy of the military-industrial complex).

  13. How do the numbers work if you create a “doughnut hole” instead of just raising or eliminating the cap? In other words, keep the current cap (as adjusted from year to year) exempt the next, say, $200-250,000 and then either re-impose the tax for the next $5,000,000 or on an unlimited basis. I’m not claiming this would solve the problem in 2030 mind you, I’m just asking the question.

    But all in all, though, an illuminating and clear analysis I intend to share with many. Thanks very much, James.

    As to other fiscal stresses, let’s start with three un-funded wars and health care system costs spinning out of control. The wars will wind down over the next few years as Americans will ultimately tire of this endless squandering on our treasure…not even mentioning the blood and lives of our service personnel. Health care costs? Absent for starters a public option that creates real competition and at the very minimum control over the cost of drugs (relatively easy to create by any governmental administration with the political will to do it), I’d say we’re pretty thoroughly screwed. In other words…we’re pretty thoroughly screwed.

  14. william laney

    From what I have read, all personal and corporate income taxes, medicare, medicaid, and social security taxes could be eliminated and replaced by a 1% tax on financial transactions–most of which today involve derivatives trades, the “weapons of mass destruction” that Buffett warned us about years ago. Why is this not being discussed?

  15. @Hoss

    It’s only produced the greatest lifestyle mankind has ever seen. It’s the free-riders who are sinking this country, not capitalism.

    Do you realize that that greatest lifestyle of yours has come at the expense of the lives, health, and standard of living of millions of others as we murder the rest of the world, plunder its resources, and poison our planet? You seriously believe we’re living “better” lives than the Native Americans did before we wiped them out too? Smoke away, those are some powerful drugs, and either a delusional view of the world or one so sociopathic and narcissistic that one doesn’t even know what to say to that.

  16. Herbert Wetherby

    @ Billy: You seriously believe we’re living “better” lives than the Native Americans did before we wiped them out too?

    Prior to that post I had thought you were balanced up enough to know better. Yes I believe we do live better than Native People of yester year and today. We have hot water and Sewer technology for nearly all. You can drive down a paved road in a comfortable car where as the natives had to break their backs on horses. ie. the term “horseback” was for both people and horses. The list goes on and on but your mind does not. It stops and idles for a while and then when told to operate again assumes that nothing has changed, or if it did somehow you then either profit from that or can contribute to its destruction by blowin smoke at anyone who does not see your point of view. By the way, we moved past that and have been getting on with what is right with the world.

  17. Tigger NItro

    This is a really good example of intellectualizing a subject. It is possible to come to about any conclusion you like if you do enough intellectualizing.

    Euthanasia by the Dutch and others is an example.

    But please tell me by what basic first principles you are working by? Natural law? No. Natural rights? No. Meritocracy? No. What of the basic principles put into place by this country that caused the greatest boon to the average man are you basing your argument on?

    All I hear is a great sucking sound coming from the end of prosperity as a it dies from gaping wounds inflicted by progressives intellectual ideas.

    All the wonderful technology and the increases in everyones standards of living we are foregoing for this short term ponzi scheme is sad.

    Frederic Bastiat explained why economists fail. They fail to take into account long term consequences for ALL parties involved. The same mistake is being made in the arguments in your article.

  18. Michael Gibbons

    Are you aware that Facebook is now blocking links to The Baseline Scenario? I received a warning last week, preventing me from posting a link to The Baseline Scenario. The warning claimed your content was reported “abusive.”
    I contacted Facebook on 4/7 and have as of yet received no reply. Once again this morning my attempt to post a link was blocked.

  19. Yeah, Hoss, it’s all about you.

  20. “You could also argue that progressive taxes are bad and taxes should be as regressive as possible, and hence Plan A is better than Plan B. I wouldn’t agree with you, but you could argue that.”
    I don’t think I’ve ever heard the argument saying regressive taxes are better than progressive.
    What would some of these arguments be?

  21. @ Herbert Whetherby:
    Can I suggest that you read the book entitled “1491”? Some of the things about native societies, especially those in the northeast, sounded like they made for a pretty good life. In fact, there are many written accounts of people who were kidnapped by native tribes, released back to the Puritan colonies after some years, and then snuck back out to return to the native tribe since they felt that life was so much better there. You seem to be enamored with superficial material comforts of modern life, maybe that’s one the major problems many people have today, and why our society is so dysfunctional. Obama would have lasted about a week as chief of one of those tribes. I have a feeling they had very little tolerance for political frauds and BS artists.

  22. By all means let us impose a 25% tax on Social Security benefits, PLEASE! As it is, every retiree with an income over $25,000 pays a 50% tax on Social Security benefits and over $34,000 pays an 85% tax on Social Security benefits. Moreover, this is one of those Reagan tax gifts that keep on giving: inasmuch as those limits are not indexed, the effective average tax rate on benefits continues to rise. By the way, this means that even if we do NOTHING about reducing Social Security benefits, they will be reduced by the currently effective law– by continually increasing their constant dollar tax rates. I sure wish those debating this issue, would understand this issue.

  23. Understanding the economics is one thing. politics is quite another. The argument JK makes would be incomprehensible to 99+% of US voters. Of those who do understand it, a very large fraction are more interested in manipulating the language for their own benefit and/or power than they are in improving public understanding of the issues or improving the outcome for peoiple as a whole.

    What is most irritating is that the extreme right-wing is very, very good at manipulating the language to serve corporate/rich masters. On the center-left side, we get well-reasoned but generally incomprehensible academic argument. Until that changes, the wingnuts win.

  24. clarence swinney

    How many of these daily?
    Dinner-Wife left arm numb-next door small emergency hosptal–nurse-elevated blood pressure–nitro patch on chest–in bed all night leave mornin bill $6000

    Cough. Congested? Emergency room–Put on monitor-ok go home 15 minutes $1700
    Pal cloth gauze shoulder to elbow-Bill for gauze $600. Buys a roll for $20. To hospital. Raises XXXX
    cut to $100

    If we had to pay we would ask How much? first.
    Cost would be less thsn half current cost.

  25. clarence swinney

    Expenditures + Revenues
    2009–we took in 17.5% of total income
    413 Billionaires with some out in space rich.
    From 1980 Three Conservative Presidents borrowed 9000 Billion. Tax Cuts made many billionaires.
    Top 1% took 10% total income ein 1980 and 24% in 2009. Top 1% owned 20% Total Financial Wealth in 1980 and 43% In 2009.
    They created only 99,000 net new jobs per month compared to Carter + Clinton 222,000

    Bush 8 created 6000B of Debt
    Two Wars=2000B
    Tax Cuts= 2500B
    Recession= 1500B

    One year he got 200,000 new millionaires.
    2001-2007 top 10% took 100% Income Growth

    Big Banks+ S&P 500 very succesful in a Great Recession???

    Rape of Middle Class.

    Will the people take to the streets?

    NO! Safety Nets protections.

  26. clarence swinney

    Imagine this Great Recession with no Safety Nets.
    No unemployment Insurance
    No Social Security Checks each month
    No Food Stamps
    No Education subsidies
    No Vet pensions
    No Vet hospital
    No Medicare
    No Medicaid

    Towns would be devastated.
    Hospitals would be closed.
    Doctors would make low pay
    Restaurants would close
    85M not 46M on Food Stamps.

    TOO HORRID TO DIS-CUSS

    cswinney2@triad.rr.com

  27. CBS from the West

    @clarence swinney: “If we had to pay we would ask How much? first. Cost would be less thsn half current cost.”

    If only it were that simple.

    First of all, even though I am well insured, because health care costs are one of my pet peeves, I _do_ ask how much first. Routinely. And I almost never get a straight answer. In fairness, the billing systems that the insurance companies have rammed into place are so complex that usually the doctor/hospital genuinely has no idea what the charges will be. Actually, it can be worse than that: in California, emergency rooms are _forbidden by law_ from discussing prices until after the treatments have been rendered!

    But let’s suppose that you could easily get transparent price information before treatment just by asking. OK, the $600 roll of gauze is obvious. But how do you decide whether that knee MRI is worth $750 or not? Maybe it’ll make the difference between walking normally again or being permanently lame. Or maybe it’s just a big waste of time and won’t influence your treatment or outcome at all. Do you know? I don’t, and I’m a physician–just not an orthopedist.

    For that matter, in your Dinner-Wife… scenario: those symptoms might have been a heart attack, or the start of a stroke. Wife might have died, or been left permanently paralyzed on one side. Or the symptoms could have been due to anxiety, or some other self-limited cause. Do you know which? Would you have had the confidence in your own diagnosis to walk away when told it would cost you $6000 to find out? Are you bold enough to make that gamble for yourself or a loved one?

    Moreover, nobody could have told you up front that it would be $6,000. Because if it had turned out to be a heart attack or stroke, it would have cost a whole lot more, easily five times as much.

    It is absurd to think that patients can discipline health care costs. “The market” can never overcome the informational obstacles that patients face in dealing with the system. The system needs drastic reform. Actually, drastic enough that reform is probably the wrong word. We need an entirely different system.

  28. Drove myself to a hospital with a red, swollen knee. No obvious trauma the previous week. Could barely get out of the car since it could not bend. Sat in the waiting room. Thought I was going to get anti-inflammatories and some self care recommendations. Instead I was admitted to the hospital for 5 days in intensive care for surgery on a staph infection that could have been deadly.

    Comparison shopping for drugs – easy. Comparison shopping for emergency admission to hospitals – not practical. One day of that single visit cost more than all the medical care I received in the previous 25 years. How do you comparison shop for that?

  29. @bmz: “PLEASE! As it is, every retiree with an income over $25,000 pays a 50% tax on Social Security benefits and over $34,000 pays an 85% tax on Social Security benefits.”

    That is not quite correct. What is true is that 50% of your “provisional income” over $25,000 and 85% of your provisional income over $34,000 is SUBJECT to income tax.

    That’s quite a different thing. For details, check out http://www.buzzle.com/articles/how-to-determine-social-security-retirement-benefits-taxed.html.

    I’m quite sure that nobody in this country now pays income tax at a rate of 85% or even of 50%.

  30. @djt: tell it to Paul Ryan.

  31. Carla, you are correct that I somewhat misstated the issue. But the fact is that that on a taxable income of $43,000 (some coming from self-employment) I pay a marginal income tax rate of 66%: 25% (income tax rate)+21.3% (25% x .85 [tax on 85% of Social Security income]) +12.4% (self-employment tax) + 7 1/2% (state income tax) = 66%

  32. By all means, stay in the program, Rich. Or, is that giving me more freedom that the you think I can handle. Lord knows what we’d do without people like you telling us what we need to do all day.

  33. @Rich S.

    Thanks for your 1491 reference and comment. I did not know there were colonists who were kidnapped by the Natives, released, and then snuck back because life was better with the Natives than Puritans. This is a fascinating bit of history.

    An Australian writer has said that Australia can never understand its own identity until it comes to terms with what the European colonists did to the aborigines. The same might be true for the Americas.

  34. You are right in saying that spending cuts and tax increases are not separate and distinct solutions, they are linked.

    As long as tax increases are implemented without fixing the structural problems of our current tax system, the more spending will increase. Increasing taxes and spending are indeed linked since tax increases guarantee that spending will increase.

    And on a separate but related point, how can anyone with your level of understanding possibly suggest that the Treasury obligations which make up the Social Security Trust Fund are sufficient to fund the system until 2030? The interest on Treasury obligations is paid from current tax revenues, so how are we assured that S.S. is “paid for until 2030″ when we already spend over $1.2T in excess of what we take in each year?

  35. James,

    I started reading an article in the Op-Ed section of the NY Times regarding Elena Kagan the Arizona case regarding religious schools and tax credits. It made think that the issue is not unlike what you and Ezra have have been writing about recently. I can’t remember if it was you or Ezra but one of you pointed out that government subsidization of health care is far more pervasive than Medicare, Medicaid & the VA hospital system in that the tax deduction for employer provided health care is a subsidy. By extension Elena Kagan in her dissent makes the same point in that offering up to a $500 tax credit that wind up paying for religious education is a government subsidization of religion and therefore unconstitutional. I thought the coincidence was interesting.

  36. Herbert, that was just offensive.

  37. Also, please read about or see videos regarding Nauru.

    http://en.wikipedia.org/wiki/Nauru

    We are Nauru.

  38. Here is something that is hardly ever added to the calculations. If everybody thinks that they have to save up for their retirement, if everybody thinks that they have to save up to be able to pay for their medical care (including extraordinary events and declining healt issues of old age), then they are not spending that money. A workable national health insurance plan and social security will actually free up a lot of money to be spent now instead of being saved. They also avoid the problems of having uninsured people that end up living off of the public services that necessarily are provided because it is a societal security thing not to allow sickness to remain untreated and to avoid having the streets filled with indigent people. After allowing for the benevolent effects of self interest, there is also the problem of having a fair and just society in which the weak are protected because we are civilized.

  39. Tigger NItro

    Have you lost your mind? You are so naive as to believe that people dont invest their savings? Even savings account money is invested by banks.

    Have you heard anything lately about how much banks were leveraged? Just a little problem you may have heard about. Banks were lending 10 times what they had as deposits. No national health care can do that.

    You are not even in the game.

    Why would you ever believe that govt can spend money better then you can? You actually don’t. But you do think govt can spend your Neighbors Money better then they can.

    Give your neighbors some credit and give this tired “Govt know how to spend better” argument a rest.

    I cannot believe you are basing your argument on more spending. If lack of spending was the issue we would simply let medical cost sky rocket…..then everyone spends.

    Ah, I just saw the “fair and just” part of your post MR Lurking social justice guy.

  40. Tax increases are not equivalent to spending cuts for the simple reason that tax increases will increase the size, reach, and interference of the government. People who have a new or increased tax will have to waste time trying to understand the law and how to minimize the tax on themselves. The government bureaucracy will inevitably grow to police the new tax compliance. Economic inefficiency grows, leading to wasted time and misdirected production capacity.

    Spending cuts on the other hand, reduce government bureaucracy, reduce government interference, and reduce the deficit.

  41. “The underlying problem is the belief that ‘tax increases’ and ‘spending cuts’ are two distinct categories to begin with. In many cases, tax increases and spending cuts are equivalent — except for the crucial issue of who gets hurt by them.”

    Aren’t you missing the little point about whose money it is to begin with? Is that no longer important in our society? A spending cut may hurt somebody, but the government spending directed towards that person/entity wasn’t theirs in the first place. The progressive idea that the collective earnings of the citizenry is somehow a shared resource is morally and economically corrupt.

  42. tigger nitro

    Exactly Publius. Its a simple concept explained by Frederic Bastiat long ago. Economists often forget to look at the entire effect across the big picture when they argue to help one particular group.

    Economist continuing education should mandate rereading Bastiat every year.