Yikes!

[Timothy]

http://www.theglobeandmail.com/report-on-business/commentary/neil-reynolds/the-scary-actual-us-government-debt/article1773879/


Boston University economist Laurence Kotlikoff says U.S. government debt is not $13.5-trillion (U.S.), which is 60 per cent of current gross domestic product, as global investors and American taxpayers think, but rather 14-fold higher: $200-trillion – 840 per cent of current GDP. “Let’s get real,” Prof. Kotlikoff says. “The U.S. is bankrupt.”

Writing in the September issue of Finance and Development, a journal of the International Monetary Fund, Prof. Kotlikoff says the IMF itself has quietly confirmed that the U.S. is in terrible fiscal trouble – far worse than the Washington-based lender of last resort has previously acknowledged. “The U.S. fiscal gap is huge,” the IMF asserted in a June report. “Closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 per cent of U.S. GDP.”

This sum is equal to all current U.S. federal taxes combined. The consequences of the IMF’s fiscal fix, a doubling of federal taxes in perpetuity, would be appalling – and possibly worse than appalling.

Prof. Kotlikoff says: “The IMF is saying that, to close this fiscal gap [by taxation], would require an immediate and permanent doubling of our personal income taxes, our corporate taxes and all other federal taxes.

“America’s fiscal gap is enormous – so massive that closing it appears impossible without immediate and radical reforms to its health care, tax and Social Security systems – as well as military and other discretionary spending cuts.”

He cites earlier calculations by the Congressional Budget Office (CBO) that concluded that the United States would need to increase tax revenue by 12 percentage points of GDP to bring revenue into line with spending commitments. But the CBO calculations assumed that the growth of government programs (including Medicare) would be cut by one-third in the short term and by two-thirds in the long term. This assumption, Prof. Kotlikoff notes, is politically implausible – if not politically impossible.

One way or another, the fiscal gap must be closed. If not, the country’s spending will forever exceed its revenue growth, and no one’s real debt can increase faster than his real income forever.

Prof. Kotlikoff uses “fiscal gap,” not the accumulation of deficits, to define public debt. The fiscal gap is the difference between a government’s projected revenue (expressed in today’s dollar value) and its projected spending (also expressed in today’s dollar value). By this measure, the United States is in worse shape than Greece.

Prof. Kotlikoff is a noted economist. He is a research associate at the U.S. National Bureau of Economic Research. He is a former senior economist with then-president Ronald Reagan’s Council of Economic Advisers. He has served as a consultant with governments around the world. He is the author (or co-author) of 14 books: Jimmy Stewart Is Dead (2010), his most recent book, explains his recommendations for reform.

He says the U.S. cannot end its fiscal crisis by increasing taxes. He opposes further stimulus spending because it will simply increase the debt. But he does suggest reforms that would help – most of which would require a significant withering away of the state. He proposes that the government give every person an annual voucher for health care, provided that the total cost not exceed 10 per cent of GDP. (U.S. health care now consumes 16 per cent of GDP.) He suggests the replacement of all current federal taxes with a single consumption tax of 18 per cent. He calls for government-sponsored personal retirement accounts, with the government making contributions only for the poor, the unemployed and people with disabilities.

Without drastic reform, Prof. Kotlikoff says, the only alternative would be a massive printing of money by the U.S. Treasury – and hyperinflation.

As former president Bill Clinton once prematurely said, the era of big government is over. In the coming years, the U.S. will almost certainly be compelled to deconstruct its welfare state.

Prof. Kotlikoff doesn’t trust government accounting, or government regulation. The official vocabulary (deficit, debt, transfer payment, tax, borrowing), he says, is vulnerable to official manipulation and off-the-books deceit. He calls it “Enron accounting.” He also calls it a lie. Here is an economist who speaks plainly, as the legendary straight-shooting film star Jimmy Stewart did for an earlier generation.

But Prof. Kotlikoff’s economic genre isn’t the Western. It’s the horror story – “and scarier,” one reviewer of his book suggests, than Stephen King.

[twyacht]

And the Evil Emperor says:

"All Too Easy".....

[runstowin]

Nothing to worry about, just the decline and fall of the American Empire.

[fightingquaker13]

I don't have the skills to evluate this. What I do know is this. Tax cuts+spending increases+ defeciet spending are not sustainable. Both parties are to blame.
The Dems have said social programs are a right and a forever guarantee.
The GOP have made tax cuts a religion and refuse to consider ANY tax increase for any reason. (Note how Iraq and Afghanistan were "emergency spending measures" years into the wars when expenses could be forseen).
Add to this that neither party advocates serious service cuts or serious tax hikes.
Both seem determined to let jobs flow out of the US, and judge GDP by "paper profits" not the real production of jobs, goods and sevices".
Worse, both seem to ignore the trade defeciet.
Oddly, I think Pat Buchanan had it right. As odious as I find many of his social positions, the man was talking sense. In hindsight, we'd have been a whole lot better off if he had been elected in 1992.
FQ13

[tombogan03884]

FQ, Tax cuts always increase revenue, sounds counter intuitive, but if folks don't have to hide their money from the tax man they are more likely to use it to expand their business which means more jobs, which results in more people paying the lower tax.

[Sponsor]

[fightingquaker13]

FQ, Tax cuts always increase revenue, sounds counter intuitive, but if folks don't have to hide their money from the tax man they are more likely to use it to expand their business which means more jobs, which results in more people paying the lower tax.

Depends how they are targeted. Do you get the same tax break for building a plant in Michigan or Sri Lanka? Do you get to outsource jobs and get the same write off? Can I get get H1-B visas for Indian computer guys who have the same credintials as Americans and make 2/3rd the salary? (And yes I'm talking about you Bill Gates) . Here's a question, should our domestic tax structure reflect the old idea of tarriffs? Is it "Made in the USA" if it spent 5 minutes in the Marianas or Guam to get the label sown on? I'm all for tax cuts, if they produce American jobs. Shuffling paper and outsourcing? Not so much. Here's a question. You CAN buy American citizenship. All you you have to do is start an enterpise that employs 50 or more US workers over five years. I have no problem with this. Do you? Just asking.
FQ13

[tombogan03884]

I've said before that I favor tariffs for American Companies that manufacture overseas with breaks for foriegn companies that manufacture here.