A Look At The Federal Budget The Market Ticker ® - Commentary on The Capital Markets

The Market Ticker ® - Commentary on The Capital Markets

Posted 2011-04-08 11:11
by Karl Denninger
in Politics

The Market Ticker ® - Commentary on The Capital Markets

Posted 2011-04-08 11:11
by Karl Denninger
in Politics

A Look At The Federal Budget

 

Let's start a real discussion on this issue.  As said on CNBC this morning, our government continues to play "powder puff" instead of dealing with the issue:
We'll start with what we know to be facts and then attempt to develop a policy prescription:

• The Federal Government has never in the history of the nation managed to collect more than 20% of GDP in taxes.  This has been true in times of peace, war, Democrats, Republicans, deficit hawks and doves.  It has been the case with a top marginal tax rate from 90% all the way down to today's rates.  The reasons for this are complex, but the primary one is that people don't have to work, and there is a pain threshold beyond which they simply work and get paid less, or at least "paid less" in terms that can be taxed.
  
• The Federal and State Governments cannot have in its budget, for a sustainable spending plan, items that increase in price faster than the productive output of the economy.  That is, GDP growth from actual organic growth, not from debt.  That in turn means that the Federal Budget cannot fund medical care as it is currently constituted in the United States.  This doesn't mean we can't have social assistance for medical care in some form, but what we have right now for a medical system precludes government involvement.  This is a fact and the medical industry either has to deal with it (meaning getting rid of the elements that cause this distortion) or get thrown out of the government spending bucket - in its entirety.
  
• We cannot generate a nation of people who vote for a living.  That is, if you receive benefits from the government and have income you must in some form pay for that government.  You don't necessarily have to pay a lot, but you do have to pay.  Everyone needs "skin in the game" so that their voting and political involvement, to whatever degree they are involved, reflects in some form and fashion of self-interest.  Altruism is a great idea but never works in the real world.
  
• Taxation must be a means of raising revenue and be entirely transparent, rather than a means of attempting to direct social policy.  If you wish to direct social policy that's fine - do it with legislation.  Attempting to use the tax code for this purpose is evil, especially when you hide those benefits and costs in federal law and administrative code books at the IRS that take up linear feet of space.

With these facts in place let's deal with taxes first, then spending.

 

Let's start a real discussion on this issue.  As said on CNBC this morning, our government continues to play "powder puff" instead of dealing with the issue:
We'll start with what we know to be facts and then attempt to develop a policy prescription:

• The Federal Government has never in the history of the nation managed to collect more than 20% of GDP in taxes.  This has been true in times of peace, war, Democrats, Republicans, deficit hawks and doves.  It has been the case with a top marginal tax rate from 90% all the way down to today's rates.  The reasons for this are complex, but the primary one is that people don't have to work, and there is a pain threshold beyond which they simply work and get paid less, or at least "paid less" in terms that can be taxed.
  
• The Federal and State Governments cannot have in its budget, for a sustainable spending plan, items that increase in price faster than the productive output of the economy.  That is, GDP growth from actual organic growth, not from debt.  That in turn means that the Federal Budget cannot fund medical care as it is currently constituted in the United States.  This doesn't mean we can't have social assistance for medical care in some form, but what we have right now for a medical system precludes government involvement.  This is a fact and the medical industry either has to deal with it (meaning getting rid of the elements that cause this distortion) or get thrown out of the government spending bucket - in its entirety.
  
• We cannot generate a nation of people who vote for a living.  That is, if you receive benefits from the government and have income you must in some form pay for that government.  You don't necessarily have to pay a lot, but you do have to pay.  Everyone needs "skin in the game" so that their voting and political involvement, to whatever degree they are involved, reflects in some form and fashion of self-interest.  Altruism is a great idea but never works in the real world.
  
• Taxation must be a means of raising revenue and be entirely transparent, rather than a means of attempting to direct social policy.  If you wish to direct social policy that's fine - do it with legislation.  Attempting to use the tax code for this purpose is evil, especially when you hide those benefits and costs in federal law and administrative code books at the IRS that take up linear feet of space.

With these facts in place let's deal with taxes first, then spending.