If I'm remembering long-ago reading on the topic, 5% is near the point at which interest service on debts exceeds all government revenue (once enough of bonds have turned over at this interest rate to actually be the effective rate being paid out on the population of 10-year T-bills.)
What is the way to interpret this situation as other than a 10 year countdown to chaos? Hope that we reign in spending in a drastic, unprecedented way (without impacting revenue as well...)? From where I'm sitting, once the debt service exceeds revenue, we'll have to get in a big war, destabilize domestic affairs with tax hikes (which are unlikely to work, based on Laffer curve), or cease to pretend that the US currency is a stable trading platform. I guess the third option seems alright for the rest of the world, except no one else's seems to be particularly appealing.
> What is the way to interpret this situation as other than a 10 year countdown to chaos?
Officials sadly have realized that they have a solution to everything: inflation.
What is really hilarious is that it's officially to "combat inflation" but their only way out is inflation because they're never ever repaying that debt.
> cease to pretend that the US currency is a stable trading platform
It is toilet paper. But so is the EUR / JPY / etc.
Considering that other nations with similar growth rates have much higher taxes, I'd say the evidence is that our current tax rates amount to a giveaway for the rich. Of course, they also happen to be the ones with real political power (see Grover Norquist), so nothing is likely to change any time soon.
Considering that other nations with similar growth rates have implemented VAT, I'd say the evidence is current American tax rates don't amount to a giveaway to the rich. Rather the opposite in fact.
I'll point out what I believe the other commenter was alluding to.
1.Consumption taxes are generally considered regressive because poorer people end up consuming a greater proportion of their incomes and thus paying taxes again on more of their earnings.
2.People who talk about a 'giveaway to the rich' or who advocate for 'tax the rich' generally mean to draw a distinction and say that the rich need to pay an even higher proportion of taxes than the do at the moment. 'The rich' is seldom (I believe never) meant as metonymy.
3. Advocating for consumption taxes is thus advocating against taxing the rich more, and vice versa.
Since roughly WW2, it seems like exemptions have steadily fallen and marginal rates with them, but generally you get consistent revenue as a percentage of GDP. I'm inclined to believe, based on that, the we are near the cultural maximum for the Laffer curve for the US, given present incentives. It's possible you could chase it higher if you disassembled all social programs so that people would fear more for their livelihoods, I guess.
*I'm not going to take the time to source this post, so you can disavow it if you like, but feel free to search for yourself.
Aside from the fact that the Laffer curve has never been proven accurate in the U.S. based on actual empirical data, it can be proven trivially false, because it implies the closer your tax rate gets to 0 the more tax receipts you will have. So you’re gonna get far more tax receipts at a 0.0001% interest rate than at a 10% interest rate, which would require a GDP at 0.0001% which would be beyond any actual possibility.
It's a bound, non-negative function on [0,1], equal 0 at 0 and 1 and having non-zero values at least in some points on (0,1). You are saying it's never been proven that such a function will have a maximum value somewhere in (0,1) in the US? Your proof of the opposite, unfortunately, does not seem right.
Eh? My understanding wasn't that the tax receipts increase as you get closer to a tax rate of zero. Wasn't the point that maximum receipts happen somewhere in the middle, but obviously tax receipts are 0 when the rate is at 0% or 100% (and closer to 0 when near the extremes)?
The “Kansas Experiment”, built upon the Laffer Curve idea would indicate it is not worth much[0]. There is of course, lots of conservative discourse on why it failed (not extreme enough, just needed to go longer, etc)
>From where I'm sitting, once the debt service exceeds revenue, we'll have to get in a big war, destabilize domestic affairs with tax hikes (which are unlikely to work, based on Laffer curve), or cease to pretend that the US currency is a stable trading platform. I guess the third option seems alright for the rest of the world, except no one else's seems to be particularly appealing.
...or we just change the price of a dollar. It's good to be the king.
The King scared away its biggest buyers with the sanctions on Russia. China is dumping its dollars. Other non-western countries like India have been slow to add to their reserves after the Russia sanctions as well.
Far from being an expert but from my understanding China’s economy is in a fairly difficult situation at the moment. They are selling because they urgently need lot of cash, not because they are afraid of USD value.
You have to look at the alternatives. There is only one earth and there only a few countries on it with stable enough monetary policy to invest in "risk free". The US tops that list by a massive margin, even given all of our other issues. Can you name a single safer investment today than US Treasuries? And do you think that any other country on earth is able to maintain the stability that we can into the future?
I like to think a primary goal of empire should be to burn out as slowly as possible, and citizens of an empire should work toward that outcome.
Having said all that, no, I believe that the US will be the most stable large state for my entire lifetime. Just the same, I would like my children to live in a US and world that is as stable as the one my parents have had.
I'm not informed enough on the topic to speak anything near authoritatively but there was an essay posted here ~6(?) months ago that spoke about how >2-3% inflation effectively serves as a means of effectively reducing government debt.
I would imagine your 5% number has to assume some baseline of inflation and that 5% would increase as inflation increases beyond said baseline.
It's true, you can gradually default on the government's obligations by changing their denomination to make the underlying promises worthless. That's consistent with my third hypothesized path.
I don't see any way that inflation jumps gently in that case. I'm suspecting we wouldn't jump straight to hyperinflation, but annual inflation 30-50% would be my guess for the first couple years that 0% of government services were covered by revenue.
Everyone has an opinion on the optimal part of the Laffer curve.
Evidence may even exist for some of these claims, but we've all got an obvious clear incentive to want lower taxes today while downplaying the long-term risks of the government failing to invest in the future, so I tend to assume we can sustain higher taxes more easily than the loudest voices[0] tell me.
[0] Unless those voices are literally, non-pejoratively, Communists; but even then that's not because they're wrong about the Laffer curve itself, but that the people still promoting Communism today tend to also gloss over all the other mistakes made by the historical examples thereof…
> Hope that we reign in spending in a drastic, unprecedented way (without impacting revenue as well...)?
American politicians, deliberately or out of incompetence, use the crisis of the moment and conveniently forego this topic.
I’m convinced the next US administration HAS to do something about this. I don’t see a way that doesn’t involve both spending cuts and raising taxes.
I don’t like discussing politics on HN, but I think this should be deeply concerning for anyone interested in start ups, technology, or innovation. All of our innovation is enabled by having a somewhat functioning democracy, courts, cops, civic culture, where people have the opportunity to critically think about hard problems and innovate, because they’re not worried so much about near term survival.
> enabled by having a somewhat functioning democracy, courts, cops, civic culture
Grab the popcorn for ten years until US divorces. States don't get along anymore, and Feds are out of control.
Democracy - when do I get to vote on the current two war fronts?
Courts - long history of corruption, particularly against minorities. No lawyer in local courts and you lose. Feds have ridiculous rate of plea bargains.
Cops - and govts have broad immunity against lawsuits to hold them accountable. Defund the FBI was relevant for the last five decades, and they keep spying on Americans because we allow it.
What is the way to interpret this situation as other than a 10 year countdown to chaos? Hope that we reign in spending in a drastic, unprecedented way (without impacting revenue as well...)? From where I'm sitting, once the debt service exceeds revenue, we'll have to get in a big war, destabilize domestic affairs with tax hikes (which are unlikely to work, based on Laffer curve), or cease to pretend that the US currency is a stable trading platform. I guess the third option seems alright for the rest of the world, except no one else's seems to be particularly appealing.