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Thread: U.S. Has No Way Out of Debt Trap

  1. #76
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    You know, I'm just a math junkie.

    FICA is 7.65% of wages.... let's assume an inflation adjusted world to keep the math simple. If you make $40K per year, $3,060 dollars gets held back for SS and Medicare, matched by $3,060 from your employer.

    Keeping math simple, $6000 per year for 40 years would be $240K at retirement age. Not a huge amount of money for pension and medical care, but back in the 60s and 70s anybody who retired with that kind of money set aside probably felt fairly secure. (Note I didn't compound interest, with no inflation I assumed a zero real interest rate. A little conservative, but it's just an illustration.)

    People are living longer, and they feel like spending more on health care is reasonable. Knee replacements in your 80s, instead of walkers or wheelchairs... cancer treatment regimens that would have been unthinkable 30 years ago.

    The problem with the concept is that what people expect of the concept has changed.

    Try this. Apply FICA tax to ALL income, not just wages. Add that 7.65% to capital gains and other "unearned income". Listen to investors scream -- yet the tax rate would be only back up to what it was 20 years ago or so. SS would be solid.....

    Or, just tell us all that Medicare and SS will supply a 60s standard of living, with the same medical care and standard of living most of us had then.

    Either way would work. It's not a "Ponzi scheme" -- it's just a classic case of champagne taste and beer budget.
    Paul
    People have some respect for the complexity of technology. But almost every ignorant fool thinks he understands money and economics.

  2. #77
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    Ponzi?

    Well, Ponzi is as Ponzi does.

    If you take the money that's supposed to be sequestered and invested, and you spend that money on other stuff, and you quietly (as in, it'll just be our little secret) "plan" to replace what you've "borrowed" with new monies paid in by an ever-expending base of payers (or "payors" depending on your jargon), then you have embarked on a practical application of Ponzi's principles.

    In other words, rules and statues be damned, we're gonna run this thing like Ponzi would, never mind how it's supposed to be run.

    And in that circumstance, yes, you would have a Ponzi scheme.


    Daughter: "Dad, how do I know who's a real friend?"
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  3. #78
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    Holy threat resurrection, Batman!

    It seems as if we do have a way out, but taxes must come up and budgets must be slashed. The one downside of our system is that it is very hard to take drastic action unless it's down to an immutable deadline. Just like 5'th grade history reports.
    Resident Liberal

  4. #79
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    Systems

    . . . but taxes must come up. . .
    More than one way to skin that cat.

    One way is to confiscate more of everyone's income. This is a disincentive to production, and results in the reduction of actual received revenues. Without fail. Every time.

    The other way is to create a broader base of taxpayers. More taxpayers yields more revenue.

    Ironically, the way to create more more taxpayers is to reduce the tax rates. The "unexpected" result of this is that more people are hired, more people are paid, more actual tax revenue is realized.

    And it works:
    Every.
    Time.
    It's.
    Tried.

    Yes, reduce spending.

    Then create more taxpayers.

    Not necessarily in that order.


    Daughter: "Dad, how do I know who's a real friend?"
    Me: "A friend is someone who cares how your life turns out."


    "Truth is a dangerous thing: once found, you must never turn your back on it." -- gh@c2

    "Look at it this way. If America frightens you, feel free to live somewhere else. There are plenty of other countries that don't suffer from excessive liberty. America is where the Liberty is. Liberty is not certified safe." -- gh@c2

  5. #80
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    I hear a lot from the "club for growth" crowd about disincentives. I think it's so much cow patty, just them talking their book.

    In my nearly 40 years now of studying business and economics, working in the fields of management and accounting, and hanging out with all sorts from the working man to the quite wealthy, I have seldom heard anyone say "no point making any more money, they'll just tax it away..."

    And those few times (I knew the people pretty well), what they really meant was "I have more than I can intelligently spend, no point in working that much, I'd rather piddle with my hobbies".

    People who are in the business of making money do it as a passion, just like painters paint and writers write. Might higher marginal rates cause a few hedgies and a few businessmen to take an earlier retirement and play with their toys? Yeah, and they'll quickly be replaced by others with a lean and hungry look. The capital doesn't evaporate, it has to be invested in something unless it's buried under a rock or put into commodities like gold, and there's only so much of that.
    Paul
    People have some respect for the complexity of technology. But almost every ignorant fool thinks he understands money and economics.

  6. #81
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    The other way is to create a broader base of taxpayers. More taxpayers yields more revenue.

    Ironically, the way to create more more taxpayers is to reduce the tax rates. The "unexpected" result of this is that more people are hired, more people are paid, more actual tax revenue is realized.
    This works for a different reason than "incentive and disincentive". When the gov takes less money, the money they don't take has to go somewhere.

    It can go into three places: consumption, savings, and investment. And for most practical purposes, that's two places, because almost all savings becomes some kind of investment.

    The consumption increases the general level of economic activity -- rising sales encourages producers to produce more and invest in more production capacity.

    The investment, if done prudently, usually leads to more efficient production, either lower costs or more output, which is lower unit cost either way. That either turns into profit or consumer savings (in the long run, usually some of both).

    All the "club for growth" crowd knows this, which is why I view their "disincentive" talk so skeptically, and even with the disdain I save for known liars. In their heart they know this is really what's going on.
    Paul
    People have some respect for the complexity of technology. But almost every ignorant fool thinks he understands money and economics.

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