All this talk of trillions of dollars can get kind of abstract, so I wanted to try to bring things into the real world where you and I live to illustrate its effects on real people. Here's the perfect article for the task from Kevin Hassett, director of economic-policy studies at the American Enterprise Institute. Work through the economist jargon Ricardian stuff, because the numbers later on will smack you square in the nose:
As bad as the news has been this year, for taxpayers there is much worse news to come.
Economists who study fiscal-policy history divide the world's governments into two categories. There are the so-called Ricardian governments, which wisely plan their taxes and spending so that they balance over time. Then there are the Nonricardian governments, which spend and borrow until they collapse.
Ricardian governments borrow in bad times and lend in good. Nonricardian governments look like a Madoff investment pool and borrow themselves into oblivion.
The category names refer to the 19th-century economist David Ricardo, who pioneered the study of government finance. His ideas have such resonance that they continue to animate one of the hottest corners of economics.
The bottom line from the latest work is simple: economies of Nonricardian governments can malfunction in bizarre ways. If capital markets lose faith in a government's long-run commitment to fiscal discipline, it's the economic equivalent of a meteor strike.
As bad as things have gotten, the good news has been that the world's investors have been lining up to purchase U.S. Treasuries. The problem for American taxpayers is that the world's investors have been doing so because they believe the U.S. government is a Ricardian one. That means markets expect U.S. taxpayers to pick up the bill for this mess. Anything else would, of course, be unthinkable.
But oh, what a bill it will be.
Dream On
When the stimulus package, the SCHIP expansion and whatever else our representatives in Washington dream up are on the books, it seems likely that the deficit for this year will approach $1.7 trillion. This is an enormous swing in the U.S. fiscal condition.
Under President George W. Bush -- a big spender in his own right -- the federal budget deficit reached a record $455 billion in fiscal 2008, more than double a year earlier. Government bailouts of banks and other industries that started under Bush, and may accelerate under President Barack Obama, will help push the deficit toward that $1.7 trillion mark.
That is $1.7 trillion in future taxes. Nobody knows exactly when the tax hike will come. It might even be that we shall try to foist the costs on our children. Still, those planning their financial futures should account for the dramatically higher taxes that will be the result of this year's policies.
Check the Numbers
Suppose the government eventually decides to allocate the bill according to the latest distribution of taxes. In 2006, for example, people with incomes between $50,000 and $75,000 paid about 10 percent of all income-tax revenue. As a thought experiment, how much would those people's taxes go up if Uncle Sam raises 10 percent of $1.7 trillion from them?
If you run the numbers for that and other income brackets, you'd better sit down. Our spending policies are not digging a hole, they are conjuring up a Stygian abyss.
If your family income in 2006 was between $75,000 and $100,000, the extra taxes that you will have to pay at some point in the future add up to about $14,000.
If your income was between $100,000 and $200,000, your future tax hike will be about $28,000. If your income was between $200,000 and $500,000, then your future tax bill just went up by $90,299.
Everybody Pays
While our tax system is heavily tilted against the rich, even those with relatively low incomes will eventually have to pay. The extra tax bill for someone with 2006 income between $25,000 and $30,000 will be about $2,500.
These numbers are in present value. If government puts off sending you the bill -- and thus must pay interest between now and then -- the bill will be higher. How much higher? If the government waits 10 years to collect the $14,000 from the person with income between $75,000 and $100,000, the bill a decade from now will be about $22,800.
To put these numbers in perspective, suppose that the U.S. government decided that it was going to stimulate the economy by ordering individuals to purchase stuff. Ever attentive to distributional issues, this mandatory purchase program would require less of poorer individuals.
A government program with about the same distributional consequences as this year's fiscal policy would require a person with an income between $25,000 and $30,000 to buy a really nice 52-inch flat-panel television. Those with incomes between $75,000 and $100,000 would be required to purchase a brand new Chrysler PT Cruiser. Those with incomes between $200,000 and $500,000 would have to purchase a midsize recreational vehicle.
Keep It
The difference between this hypothetical program and what we got, of course, is that in the hypothetical, at least you get to keep the stuff.
These tax bills are also large relative to the typical wealth of individuals in most income brackets. For example, recent Federal Reserve data suggest that the typical person with income around $100,000 has about $300,000 in assets. The new tax liability associated with this year's policies is a little less than 10 percent of their wealth.
So when you get your tax rebate in the mail after the stimulus package becomes law, do yourself a favor and put it in the bank. Given the big tax hike that is coming, anything else would be irresponsible.
Economists who study fiscal-policy history divide the world's governments into two categories. There are the so-called Ricardian governments, which wisely plan their taxes and spending so that they balance over time. Then there are the Nonricardian governments, which spend and borrow until they collapse.
Ricardian governments borrow in bad times and lend in good. Nonricardian governments look like a Madoff investment pool and borrow themselves into oblivion.
The category names refer to the 19th-century economist David Ricardo, who pioneered the study of government finance. His ideas have such resonance that they continue to animate one of the hottest corners of economics.
The bottom line from the latest work is simple: economies of Nonricardian governments can malfunction in bizarre ways. If capital markets lose faith in a government's long-run commitment to fiscal discipline, it's the economic equivalent of a meteor strike.
As bad as things have gotten, the good news has been that the world's investors have been lining up to purchase U.S. Treasuries. The problem for American taxpayers is that the world's investors have been doing so because they believe the U.S. government is a Ricardian one. That means markets expect U.S. taxpayers to pick up the bill for this mess. Anything else would, of course, be unthinkable.
But oh, what a bill it will be.
Dream On
When the stimulus package, the SCHIP expansion and whatever else our representatives in Washington dream up are on the books, it seems likely that the deficit for this year will approach $1.7 trillion. This is an enormous swing in the U.S. fiscal condition.
Under President George W. Bush -- a big spender in his own right -- the federal budget deficit reached a record $455 billion in fiscal 2008, more than double a year earlier. Government bailouts of banks and other industries that started under Bush, and may accelerate under President Barack Obama, will help push the deficit toward that $1.7 trillion mark.
That is $1.7 trillion in future taxes. Nobody knows exactly when the tax hike will come. It might even be that we shall try to foist the costs on our children. Still, those planning their financial futures should account for the dramatically higher taxes that will be the result of this year's policies.
Check the Numbers
Suppose the government eventually decides to allocate the bill according to the latest distribution of taxes. In 2006, for example, people with incomes between $50,000 and $75,000 paid about 10 percent of all income-tax revenue. As a thought experiment, how much would those people's taxes go up if Uncle Sam raises 10 percent of $1.7 trillion from them?
If you run the numbers for that and other income brackets, you'd better sit down. Our spending policies are not digging a hole, they are conjuring up a Stygian abyss.
If your family income in 2006 was between $75,000 and $100,000, the extra taxes that you will have to pay at some point in the future add up to about $14,000.
If your income was between $100,000 and $200,000, your future tax hike will be about $28,000. If your income was between $200,000 and $500,000, then your future tax bill just went up by $90,299.
Everybody Pays
While our tax system is heavily tilted against the rich, even those with relatively low incomes will eventually have to pay. The extra tax bill for someone with 2006 income between $25,000 and $30,000 will be about $2,500.
These numbers are in present value. If government puts off sending you the bill -- and thus must pay interest between now and then -- the bill will be higher. How much higher? If the government waits 10 years to collect the $14,000 from the person with income between $75,000 and $100,000, the bill a decade from now will be about $22,800.
To put these numbers in perspective, suppose that the U.S. government decided that it was going to stimulate the economy by ordering individuals to purchase stuff. Ever attentive to distributional issues, this mandatory purchase program would require less of poorer individuals.
A government program with about the same distributional consequences as this year's fiscal policy would require a person with an income between $25,000 and $30,000 to buy a really nice 52-inch flat-panel television. Those with incomes between $75,000 and $100,000 would be required to purchase a brand new Chrysler PT Cruiser. Those with incomes between $200,000 and $500,000 would have to purchase a midsize recreational vehicle.
Keep It
The difference between this hypothetical program and what we got, of course, is that in the hypothetical, at least you get to keep the stuff.
These tax bills are also large relative to the typical wealth of individuals in most income brackets. For example, recent Federal Reserve data suggest that the typical person with income around $100,000 has about $300,000 in assets. The new tax liability associated with this year's policies is a little less than 10 percent of their wealth.
So when you get your tax rebate in the mail after the stimulus package becomes law, do yourself a favor and put it in the bank. Given the big tax hike that is coming, anything else would be irresponsible.
This is what this 'stimulus' bill means to you: at some point in the future, you will be required to pay thousands of dollars in extra taxes. The average salary in America is around $50,000, so most people will pay somewhere between $7,500-$14,000. If you don't end up paying the balance, your kids will pay the balance plus years of interest, which means you're sticking them with an extra tax bill of about double that (maybe more, depending on how far down the road it happens). Thus the Generational Theft Act name.
What was that about Obama NOT raising taxes again? Were you thinking he'd cut taxes for 95% of Americans? Why didn't anyone warn that's what he was going to do? Actually, we did know he was going to do that, and we also warned people -- over and over -- that's what he would do. Unfortunately, this was one of the many things that never really percolated out into the public consciousness since the media were more interested in the mantra of hope-n-change and covering up Obama's deficiencies than actual reporting. Now we're all going to get screwed by the liar-in-Chief, precisely as predicted months before the election took place. [Don't believe me? See the "Critical Election Information" section on the lower right side of my blog for those posts...]
I only raise that point to illustrate that we simply cannot trust the mainstream media anymore, and that it is the new media (Internet, blogs, etc.) where the real investigation and truth are to be found. But what's done is done. The key question now is: what can we do about this? The only thing that can derail this legislative rip-off is to force the Senate to kill the bill.
Here's how it will have to work. There are currently just over 40 Republicans in the Senate (41 or 42, depending on how the Minnesota race plays out in the courts). It will take 60 votes to push this bill through, so if even two or three of the GOP Senators defect, you and I get screwed. The problem is that there are several RINOs (Republican in name only) who usually vote with the Democrats, so it's going to be very tough to get unanimous support from the GOP. The only hope is to melt the phone lines of our Senators every day from now until they actually vote on the bill. Call them and tell them to oppose this pork bill, then call them again tomorrow and tell them the same thing. You might also want to throw in a call to the Minority Leader Mitch McConnell and encourage him to urge unanimous opposition from the GOP. Believe me when I tell you this can work - the House unanimously opposed this thing last week, and I think it's largely because of pressure from angry Americans. And don't think that you don't need to call just because your Senator(s) may be Democrat - there were 11 Dems in the House who sided with the Republican opposition. Peeling off even a couple of Democrats would go a long way toward killing this beast.
I'm hoping that by putting a specific dollar amount on how much each person's taxes are going to go up -- across the board, even for poor people -- maybe now some more folks will understand that they have skin in this game already, and take some action to save that skin. Spread the word, and spread it fast.
And start dialing...
There's my two cents.
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